Common Stock (equity)
Represents ownership of a company
Return on a common stock
Dividends –> A distribution of a company’s earnings paid out to its shareholders
- Paid quarterly
Capital Gains –> Share appreciation (increase in the value of your ownership stake)
- Difference of what you paid for it versus what you sold it for
Common stockholders vote on the following
Board of directors: True
Management (CEO, CFO): False
Dividend distributions: False
Corporate events (mergers): True
Investors can find information about shareholder meetings and vote their shares using what document?
Proxy Statement
Cumulative Voting
accumulate all your votes together and can allocate however you want (more voting power)
Income Stock
Mature industries, consistent dividends (ex : utility stocks)
- Objective : want dividends
- less risky
Defensive Stock
Stable regardless of economic cycle (food, medicine)
- Objective: Stability
- less risky
Growth Stock
Reinvest earning into business, higher volatility (no dividends) (ex: tech companies)
- Objective: Capital gain (buy stock cheap, see return in future)
- more risky
Cyclical Stock
Performance mirrors economic cycle (price mirrors season) (they do well when people are flushed with cash) (ex: restaurants, vacations)
- Objective: Outperform market
- more risky
Systematic Risk (market risk)
the risk that your investment is impacted by overall market performance (nothing to do with your own company)
- Best Protection: hedging (using options)
Non-systematic risk (business risk/specific risk):
risk of your investment doing poorly based on what it does/its product/the company itself
- Best Protection: Diversification
American Depositary Receipts (ADRs)
allows for US-based investors to trade foreign stock (without having to deal with foreign regulations)
- Can trade on exchanges and over the counter
- Some of dividend may be withheld to shareholders due to tax
ADR risk exposure
- Political Risk (Every international investment has political risk)
- Currency Risk (any conversion means there is risk)
- Inflation Risk
Preferred Stock
equity security providing regular, steady income
- Expect payments based on the fixed quarterly payments (always get that steady percent, no matter the success or struggle of the company)
- These dividends are paid before dividends to common stock
- Do not have voting rights
Penny Stock:
less than $5 per share, quoted over-the-counter (unlisted)
- Very risky, illiquid, volatile, greater chance of fraud
- Have voting rights (typically common stock)
Pre-Emptive Rights:
Shareholder of a stock is given the opportunity to buy additional shares of that same stock at a slight discount (before going to open market) (short term)
- Avoid dilution
Warrant
allows holder to buy the issuer’s stock at a specified exercise price (long term)
- Can sell warrants, don’t have to exercise
Declaration Date
date the board of directors announces a dividend
Ex-date
The first date buyers are excluded on the dividend
Record date
data a shareholder would have to be owner to receive dividend
Settlement
the date a transaction is completed
- However receive legal ownership of it a day later
- On settlement, ownership goes to buyer, payment goes to seller
Stock Split
adjustment of company’s price and number of shares (more shares, cheaper stock price)
- Reverse stock split means less shares, more expensive stock
- No tax on a stock split
Short Sale
a sale of a stock that you do not own (believe stock will go down)
- Bank lends you shares, you sell to buyer, need to buy back shares to give to bank
- Make money if stock goes down
- Maximum loss is unlimited
Payable Date
the date on which a corporation pays a dividend to shareholders of record
