Stock Market Dividend, Capital Growth, Buyback & Type of Stock Market.
In previous blog, you can realize well that you can earn money by investing in share markets. The following ways in which you can grow your money.
- 1. Dividends
- 2. Capital Growth
- 3. Buyback
So, we will see more about dividends, capital growth and buyback.
WHAT ARE DIVIDENDS AND HOW DO THEY WORK?
Dividend is the cash distribution of profits of company to its shareholders. This stock distribution is generally made in fractions per existing shares. For example, a company might issue a stock dividend of 8%, which will require it to issue 0.08 shares for every share owned by existing shareholders, so the owner of 100 shares would receive eight additional shares. Major proportion of profit is kept by company for its ongoing or future development or business activities.
If the owner of share wants to sell their shares, then and only then stock dividends are taxes.
How do stock dividend work?
Every share that you own you are paid a portion of company’s earnings. A dividend is paid per share of stock. For instance, if you own 20 shares in a company and that company pays $2 in annual cash dividends, you will receive $40 per year.
WHAT IS CAPITAL GROWTH?
Capital growth is nothing but increase in capital or investment over time period. capital growth is measured by the difference between value of current market price and its purchase price. Capital investment varies from the level of tolerance of investors while investing. Investors with low-risk tolerance are mostly likely to seek most of income and investors with high-risk tolerance are likely to have high capital growth.
TYPES OF CAPITAL GROWTH INVESTMENTS.
Below mentioned are some common investments that might be used in capital growth strategy: -
1. Funds (Exchange traded funds (ETFs) and mutual funds)
2. Equities
3. Bonds
4. REITs (real estate investment trusts)
WHAT IS BUYBACK?
Buyback is when the company purchases its own shares to reduce numbers of share available in the open market. A buyback is also known as share purchase. If a company feels its shares are undervalued so they do a buyback to give investors with its returns. Doing this price of stock will raise if the same price-to-earn(P/E) ratio is balanced.
HOW DOES BUYBACKS WORKS?
Buybacks are carried out in two ways:
- Shareholders might be presented with a tender offer, where they have the option to submit, or tender, all or a portion of their shares within a given time frame at a premium to the current market price. This premium compensates investors for tendering their shares rather than holding onto them.
- Companies buy back shares on the open market over an extended period of time and may even have an outlined share repurchase program that purchases shares at certain times or at regular intervals.
DIFFERENT TYPES OF STOCKS TO INVEST IN: WHAT ARE THEY?
The main objective of investing in stock market is to ensure that every person is able to meet his or her future financial needs. Rise in inflation makes it inadequate for individuals to simply earn and save some part of their incomes. To meet the price increases due to inflation, investments become important. The stock market is one of the oldest and most popular investment avenues due to several benefits of investing in stocks.
Here are the major types of stocks you should know.
1. Common stock
2. Preferred stock
3. Large-cap stocks
4. Mid-cap stocks
5. Small-cap stocks
6. Domestic stock
7. International stocks
8. Growth stocks
9. Value stocks
10. IPO stocks
11. Dividend stocks
12. Non-dividend stocks
13. Income stocks
14. Cyclical stocks stocks
15. Non-cyclical stocks
16. Safe stocks
17. ESG stocks
18. Blue chip stocks
19. Penny stocks
COMMON STOCK AND PREFERRED STOCK.
Most stock in which people invest is common stock.it represents partial ownership in the company, with shareholders getting the right to receive a proportional share of the value of any remaining assets if the company gets dissolved.
Preferred stocks are completely opposite to common stock, with shareholders getting the right to receive a proportional share of the value of any remaining assets if the company gets dissolved.
LARGE-CAP, MID-CAP AND SMALL-CAP STOCKS.
Large-cap companies are businesses that are well-established and have a significant market share. Large-cap companies have market caps of Rs 20,000 crore or more. These companies dominate the industry and are very stable.
Mid-cap companies are companies whose market cap is above Rs 5,000 crore but less than Rs 20,000 crore. Investing in these companies can be riskier than investing in large-cap market companies. This is because mid-caps tend to be more volatile.
Small-cap companies are those that have a market capitalization of less than Rs 5,000 crore. These companies are relatively smaller in size and have significant growth potential. What makes them risky is the low probability that they will be successful over time. This makes the stocks of such companies volatile in nature.
DOMESTIC AND INTERNATIONAL STOCKS.
Domestic stocks are the stocks of American companies traded on the various stock exchanges. Foreign stocks are the stocks of companies outside the United States. If their stocks trade on U.S. exchanges, it is through what is known as an American Depository Receipt (ADR).
International stocks, both common and preferred, are issued by corporations outside the U.S. They may trade on several different exchanges around the world, including in the U.S. in the form of American depositary receipts, or ADRs.
GROWTH STOCKS AND VALUE STOCKS.
A growth stock is a share in a business that’s shown above-average earnings and has the potential to grow faster than the overall economy. Because such stocks generally increase in price more quickly than other stocks, you may pay more for each share — based on what the company’s current earnings are — than you would pay for the stock of a slower-growing company. Because growth stocks tend to be relatively volatile, they are considered to contain some risk.
A value stock is a stock with a price that appears low relative to the company’s financial performance, as measured by such fundamentals as the company’s assets, revenue, dividends, earnings and cash flows. Because they see the stock as relatively undervalued, they’re anticipating that its appreciation will outpace the growth of the value stock’s competitors or the market overall.
IPO STOCKS.
An initial public offering (IPO) has long been the primary vehicle for companies entering the public markets. In the IPO process, a privately held company declares its intention to go public by filing the necessary documents with the U.S. Securities and Exchange Commission (SEC). Over a period of several weeks, the company works with underwriters to obtain commitments from institutional investors to buy blocks of stock. The company and its underwriters then set the IPO per-share price, and the stock begins trading publicly on a stock exchange.
DIVIDEND AND NON-DIVIDEND STOCKS.
Dividend stocks are companies that pay out regular dividends. Dividend stocks are usually well-established companies with a track record of distributing earnings back to shareholders.
Companies that do not pay dividends on their stock often reinvest the money that would have gone to dividend payments towards the company’s expansion and overall growth. Dividends are paid on particular dates; one should know different dates related to the dividends.
INCOME STOCKS.
An income stock is one that reliably pays a dividend, which is a portion of the company’s profits, to its shareholders. Dividend payments are disbursements, typically in cash, that companies regularly send to their investors. Most companies pay quarterly dividends, though some provide income only annually or semi-annually. A minority of companies pay dividends each month.
CYCLICAL AND NON-CYCLICAL STOCKS.
The terms cyclical and non-cyclical refer to how closely correlated a company’s share price is to the fluctuations of the economy. Cyclical stocks and their companies have a direct relationship to the economy, while non-cyclical stocks repeatedly outperform the market when economic growth slows.
Companies of cyclical stocks sell goods and services that many buy when the economy is doing well but cut during downturns. On-cyclical companies sell goods household non-durable goods like soap and toothpaste.
SAFE STOCKS.
Safe stocks are stocks whose share prices make relatively small movements up and down compared with the overall stock market. Also known as low-volatility stocks, safe stocks typically operate in industries that aren’t as sensitive to changing economic conditions. They often pay dividends as well, and that income can offset falling share prices during tough times.
BLUE CHIP STOCKS AND PENNY STOCKS.
Blue chip stocks are the stocks of well-known, high-quality companies that are leaders in their industries. These companies have stood the test of time and gained the respect of their customers and their shareholders. Blue chip companies often make regular and growing dividend payments. With solid business models, blue chip stocks have produced long records of attractive returns, and that’s made them among the most popular individual stocks in the stock market for conservative investors looking for places to put their money to work.
A penny stock typically refers to the stock of a small company that trades for less than $5 per share. Though some penny stocks trade on large exchanges such as the New York Stock Exchange (NYSE), most trade via over-the-counter (OTC) transactions through the electronic OTC Bulletin Board (OTCBB) or through the privately-owned OTC Markets Group. There is no trading floor for OTC transactions. Quotations are also all done electronically.
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In next blog I will discuss about IPOs ,FPOs, OFSs AND SIPs TYPES in detail.
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