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Stock Investing Basics: Dividends, Capital Gains, and Growth Stocks
Learn the fundamentals of stock investing, and gain a deeper understanding of dividends, capital gains, and growth stocks. In this comprehensive guide, we’ll help you make informed decisions as you navigate the stock market.
What is Stock Investing?
Stock investing represents the purchase or ownership of a small piece of a publicly-traded corporation. In essence, investors can buy and sell shares of a company on the stock market.
Understanding Dividends
Dividends are a portion of a company’s earnings that it pays out to shareholders periodically. Once you invest in a dividend-paying stock, you’ll receive regular payments, which add up to a valuable source of income for long-term investors.
Types of Dividends
- Common Stock Dividends
- Preferred Stock Dividends
Capital Gains and Stock Investing
Capital gains occur when an investor sells a stock for more than its original purchase price. Capital gains serve as another vital source of earnings for investors looking to grow their portfolio.
Short-term Capital Gains vs. Long-term Capital Gains
- Short-term Capital Gains: Gains made within one year of ownership
- Long-term Capital Gains: Gains made after one year of ownership
Exploring Growth Stocks
Growth stocks are shares in companies showing high potential for future earnings growth rather than current dividend payments. These stocks tend to appreciate faster than other stocks, making them attractive to ambitious investors with a long-term vision.
Characteristics of Growth Stocks
- Relatively low or no dividend payouts
- Consistent revenue and earnings growth
- A higher price-earnings (P/E) ratio
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