Before doing stock investing you should know what you are buying!
Do you exactly know what you are buying when purchasing a stock?
Before entering the stock market someone has to know the answer to
the question what is a stock?
Explaining it in its easiest way possible you would say that a
stock represents an ownership or partnership with
the company
you invested your capital in. With the stocks you now own you possess
a fraction of the company. You have become a shareholder
of the corporation. When there are 1 million shares outstanding and
you have bought 10,000 stocks 1% of the company belongs to you.
Everything which is related with this corporation is 1% yours. You
always get 1% of every asset and future profit. The profit you get
proportionally to the number of stocks you own is called dividend.
But even when the corporation has made a profit your dividend is not
definite. Only if the management concludes to distribute
dividends
you will get your portion.
Shareholders want to profit from the increase of higher stock prices.
The money you gave to the company is also called equity. This type
of capital is also called risk capital, because the company will give
you no guarantee that you will get your money back. Thus, for the
company it is not borrowed money or debt. And you will not get
assured interest rates. So, for the worst case possible namely when
the corporation goes bankrupt you will lose your whole equity
capital.
Being a shareholder contains voting rights too. One time per year
you will get an invitation to the general meeting of
shareholders.
There the present and future condition of the company is discussed.
Among other things this general meeting is also used to vote for a
retention or the distribution of the dividends. You can decide if you
are for or against a certain plan.
Shareholders don't become shareholders in order to collect the
dividend. Growing companies generally retain the dividend
anyway
in order to accelerate the growth process. Every stockholder is more
interested in the stock price movements in the stock market. These
are the returns everyone is after. In the stock price every present
and future condition is already considered. But the fluctuations and
price increases are much stronger than the annual growth rate of the
stock issuing company.