Why common stock
Securities that represent equity ownership
Its also give the holder a share in a company's
profits via dividend payments or the capital
appreciation of the security
Common stockholders have junior status to the
claims of secured/unsecured creditors, bondholders
and preferred shareholders in the event of a
Common stock has lower priority in event of
liquidation than preferred shares 3
Characteristics of Common Stock
the right to receive dividend payments
typically from earnings -- if authorized by the
board of directors
the power to sell the stock (liquidity rights)
and realize capital gains on public trading
markets or in private transactions-- if there
are willing buyers
the right to receive consideration in a merger
or other fundamental transaction -- if
approved by the board and the shareholders
the right to vote to elect directors and to
Common stock represents a bundle of rights and powers.
Types of common stock
Shares of large, well-established, and financially strong
companies with an impressive record of earnings and
Shares of companies that have a fairly entrenched positions in
a growing market and which enjoy an above average rate of
growth as well as profitability.
Shares of companies that have fairly stable operations,
relatively limited growth opportunities, and high dividend
Shares of companies that have a pronounced cyclicality in their
Shares of companies that are relatively unaffected by the ups
and downs in general business conditions.
Shares that tend to fluctuate widely because there is a lot of
speculative trending in them.
Large and ageing companies that are excepted to grow slightly
faster than the gross national products.
Giant companies that are faster than slow growers but are not
Small, aggressive new enterprises that grow at 10 to 25 % a
Companies whose sales and profit rise and fall in a
regular, through not completely predictable, fashion.
Companies which are steeped in accumulated losses but
which show signs of recovery. Turnarounds company have the
potential to make up lost ground quickly.
Companies that have valuable assets which have been
somewhat overlooked by the stock market.