If a company was an apple pie, a stock would be a slice of the pie. In short, a stock is a slice of a company. Everyone who owns a piece of a company has the right to share a portion of the profits of the company. This sharing comes in the form of dividends, which is usually a cash payout that a company pays to its owners on a regular basis, for example every quarter (every 3 months).
Many companies do not pay a dividend to their shareholders. This is either because the company is not profitable (ie. making money) or because it is reinvesting its profit to grow the business even more. Often young companies prefer to reinvest their profits and therefore do not pay a dividend.
In your great great grandfather’s time, investors used to get a piece of paper to prove that they purchased stocks in a company. Today, an investor gets nothing more than a digital confirmation of purchasing a stock, whether the investor trades through an investment advisor at a traditional broker or online using a discount broker.Go back to the encyclopedia index