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Understanding the concept of shares and their classifications
We have all heard of investment shares, but it’s important to know the details about the various types of shares and the classification of shares. What makes the shares of one company more valuable than another? How do you choose the right shares?
Anyone who owns shares or is considering their purchase should be aware of the different types of shares and the shares classification system. This will allow you to understand exactly what type of stock or shares you own, and what benefits you will receive. There are several different stock types and classifications, so it is important to understand what type your shares and what their classification is. Two of the biggest stock types are preferred stock shares and common stock shares. They type of shares you own will determine how you are paid, and the value of your stock if the company goes under, as well as the order debts are paid to shareholders.
Common stock is one of the most available, and this stock is a representation of equity ownership in the specific company. These stock shares entitle you to vote in many company matters, such as the directors of the company. Common stock shares receive dividends, but only if the corporation earns money, and common share dividends are paid after any obligations to debt are paid and preferred stock shares have been paid their dividends. Preferred stock shares are another main type of share. Preferred stock also receives dividends if a company has earnings, and these dividends are paid at a specific percentage of the stock value, with the rate being fixed. If a company goes under, preferred stock shares will be paid before common stock shares, but neither of these shares will get a payment from any assets liquidated until all bonds and other debt is paid. There are also treasury shares, which are kept by the company and not offered for public sale, and restricted shares, which are used by a company as compensation. Restricted shares can not be sold unless the SEC gives permission, and these shares are usually used in employee stock purchasing plans and other plans involving employee compensation.
Blue chip shares are stocks that belong to companies which are well established, such as Coca Cola or Microsoft. These shares normally pay dividends, and have a track record of performance and earnings. Blue chip companies also have no large amounts of liabilities. Blue chip shares are usually the cream of the crop, and are sought after. These types of shares are generally considered stable and safe as an investment. Penny stocks are another shares classification, and these shares are low in price and high in risks. Penny shares are not traded on the regular stock markets and exchanges, and are instead traded on over the counter markets instead. Penny shares offer a significant opportunity for reward if you choose wisely, but there is a high risk level involved because many penny shares come from companies without an extensive history available.
Income shares are income stocks, and these shares offer a dividend that is higher than usual considering their market price. These shares offer a great way to offset any future inflation effects. Shares classification can also include growth stocks. These are shares which will appreciate in value over time, and give you a high return on your investment. Growth shares normally re-invest into the company, allowing it to grow. Company growth causes the market price of these shares to go up, so that you get a better return. Value shares or stocks are shares which investors believe have been undervalued, and these shares are believed to be worth more than the current market value.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Stock Investment Basics15 Jan 2012|