When you invest in stocks, you purchase a percentage of ownership of a publicly held company. Depending on the company’s earnings, the value of your stock can change. When the company’s earnings increase, the value of your stock increases.
Likewise, if the company performs poorly, your stock value will go down. Stocks can be risky, but they generally offer a higher return in the long run. Working with drummond-willoughby our financial advisers whill determinine which stocks are best for you.
Simply put, each share of common stock represents a share of ownership in a company. If a company does well or the value of its assets increases, common stock can go up in value. On the other hand, if a company is doing poorly, a common stock can decrease in value. Simply put, common stock allows investors to share in a company's success over time, which is why they can make great long-term investments.
Some companies choose to distribute some of their profits to common stockholders in the form of dividends, and each common stockholder is entitled to a proportional share.
A company usually issues preferred stock for many of the same reasons that it issues a bond, and investors like preferred stocks for similar reasons. For a company, preferred stock and bonds are convenient ways to raise money without issuing more costly common stock. Investors like preferreds because they often pay a higher yield than the company’s bonds do.
So if preferreds pay a higher dividend yield, why wouldn’t investors always buy them instead of bonds? In a nutshell the answer is that preferred stock is riskier than bonds.