What is a Common Stock?

Answer:
A company that offers stock can offer one of two different

classes of stock: common or preferred. Common stock allows stockholder to enjoy capital appreciation and dividends from the issuing company.

When a stock’s value increases over time, this is called capital appreciation. For example, if you buy a stock for $10 and it increases to $15, you will make a profit when you sell the stock at the increased value.

Common stocks that offer dividends offer shareholders another benefit: a share of the company’s profits in the form of a dividend. Dividends are a portion of the company’s profits. These payments are taxable and can either be paid outright or reinvested in buying more stock. Dividends are based on a company’s capacity to grow which means that ongoing dividend payments are not guaranteed.

Common stock holders also have rights such as the right to vote on company issues and elect the board of directors. In most cases (but not all), you get one vote for each share of common stock that you own.


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