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I am extremely excited to announce my new e-book, SOLID STOCK SELECTION is now available !! Click here to find out more.
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June 25, 2006 Common Stock Preferred Stock, what do you prefer? There are different kinds of stock available in some companies (not all.) I believe that all publicly held companies offer shares of common stock. This is what you normally would see traded on the open market on the various exchanges. As a general rule, as I stated last week, if a company is doing well, has profits and decides to issue a dividend on their stock (as opposed to re-investing the cash to expand or rebuild their company) dividends will be distributed among the shares of stock with equal proportions going to each share of common stock. This is true, but there are other types of stock to consider. The one I will expound on today is “Preferred Shares.” As a general rule preferred shares are “first in line” when it comes to sharing the profits in the form of dividends. This may sound like a sweet deal, and it can be, but there are also drawbacks to it. Dividends to preferred shares are similar to the returns on Bonds, in that they are usually fixed amounts of return. This means in tough times or times of abundance, you get the same dividend. On the opposite side of the coin, common shares will get little or no dividend in tough times, but will get a larger share in times of plenty. To give an example, if company A has a bad quarter and makes no profits, preferred shareholders may get their $1 per share guarantee. Common shareholders get nothing. If the company goes gangbusters and has a record setting quarter, preferred shareholders will get their $1 per share guarantee, while common shareholders will get a percentage of the profit, whatever that may be. Another way to look at preferred is it is a fixed return on your investment. This would be looked at as a fixed cost for the company for using your money. Because common shareholders are sharing the risk with the company their payoff is potentially greater. “Preferred” is a relative term. Are you looking for safety more than growth? In that case maybe preferred shares are for you. Looking for growth or potentially higher earnings?? You may want to stock with the ‘common’ stock. That’s all for this week, Thank you, Rob
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Want a scholarship into the Millionaire Mind Intensive worth $2590? http://www.secretsofthemillionairemind.com The columns, articles, message board posts and/or any other features provided on Wealth Training Source are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author’s own and there is no implied endorsement by Robert Britt of any advice or trading strategy copyright Robert E. Britt 2006 |
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