Chapter 09 - Stocks - Section 1 - Common Stocks and Preferred Stocks

When and how is common stock dividends paid?

Common stock share holders are paid an equal amount per share usually quarterly.

What are three types of preferred stock incentives?

Cumulative preferred stock, convertible stock, and participation feature.

If the Board of directors decides to invest the profits back into the corporation how are dividends paid to stockholders?

Dollar appreciation of stock

Preemptive Right

Gives current stockholders the right to buy any new stock a corporation issues before its stock is offered to the public.

Preferred Stock

Gives the stockholder the advantage of receiving cash dividends before common stockholders receive any cash dividends.

What is required by law for corporations to do for shareholders?

Hold a yearly meeting in which shareholders can vote on company business. Shareholders usually have one vote per share.

Why do investors buy shares of stock?

Investors want to make more money than they would in safer investments as with bonds or savings accounts.

What is cumulative preferred stock?

Investors who hold cumulative preferred stock will build up dividends that will be paid at a later date if the Board of Directors omits dividend payments.

What does a stock split increase and decrease?

Lowers the value but increases the number of shares.

How does preferred stockholder know the amount of dividend they will receive?

Preferred stockholders are paid dividends by using the par value which is the value of the stock multiplied by the dividend rate. The par value is printed on the stock certificate and does not change and is not affected by stock market fluctuations, unlike common stock.

What are three ways investors can make money on common stocks?

Profit when they receive dividends, when the dollar of their stock appreciates, and when the stocks split and increase in value.

Stock Split

Shares of stock held by existing stockholders are divided into a larger number of shares.

Who decides if dividends will be paid to shareholders?

The Board of Directors

Why do corporations split their stock?

The management believes that stocks should be trading within an ideal price range.

Why do corporations sell shares of stock?

To make money, sell its products, fund operations, and expand the corporation.

Why do corporations issue common stock?

To start up their business and help pay for ongoing operations.

Dividend

a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves).

Participation feature

allows preferred stockholders to share in dividends with common stockholders after all common share dividends have been distributed.

Securities

are all of the investments - stocks, bonds, mutual funds , options, or commodities that are bought and sold on the stock market.

What are advantages of preferred stock ownership?

are considered a safer investment than common stock and provides a steady source of income.

Private Corporation

is a company that issues stock to a small group of people

Public Corporation

is a corporation that sells its shares openly to anyone who will buy them.

Par Value

is an assigned dollar value that is printed on a stock certificate.

What is a disadvantage of preferred stock ownership?

limited voting rights and lacks little growth.

What is convertible preferred stock?

preferred stock that can be exchanged for a specific amount for a specific amount of common shares.