Basics About Stocks – An Introduction to Investing in Stocks
Stock is the shares in which ownership of a company is divided. In ordinary English, the stocks are collectively referred to as “stock”. Each shareholder (the person holding the stock) is entitled to one fifth of a share or a fraction of a share, depending on the type of agreement in respect of the fraction in question. A single share of stock represents a fractional share of a company in percentage terms to the total number of outstanding shares. If there is a sale of all the outstanding shares, then the purchaser of all such stock is said to be the whole owner of that company.
Dividends are paid by the shareholders regularly to their creditors and are termed as income. The shareholders may also decide to sell their stocks for a lump sum amount. Dividends are commonly used as repayment of debts. There are different types of dividends, including straight dividends, growth dividends, redeemable dividends and non-dividend earning dividends. Straight dividends are given in accordance with the regulations of the company and are tax-free. Growth and non-dividend earning dividends are paid only if the company has been operating for a specified period, are normally reinvested in the business and are registered as an additional income in the company’s books.
All dividends are received by the shareholders without paying any income tax on them. Most companies allow their shareholders to opt for dividends either through a monthly or yearly subscription, either direct or through the method called “call and pull” on the company’s shares. Most investors prefer stocks that have a high rate of dividends. This is because they earn less during a time of year when market prices are falling and also earn more during the time of a rising market. The term of the dividend is generally two or three years, with a minimum interval of two years between consecutive quarters of dividend payment. The main purpose of paying dividends is to compensate the shareholders for their loss on the principal stock of the company, and therefore, are interest payments as well as tax withholdings.