Why Companies Issue Stock

• Companies issue stock primarily to raise capital. The company brings in money by selling the shares of the company and can use this money for company expansion. The money brought in does not have to be paid back, unlike loans from a bank. But issuing stock dilutes the ownership of the company.
  
  

Types of Stocks

• Stocks come in two varieties: common and preferred. Common stock is much more frequently traded than preferred stock. Common stock has voting rights and the potential for much greater growth because the dividends are not limited. Preferred stock does not have voting rights, but its owners are promised a certain dividend that must be paid before common stock owners can receive dividends.
  
  

How You Make Money

• Make money from dividends and stock appreciation. Some companies pay a regular dividend, paid to you based on the numbers of shares you own. For example, a company might pay a quarterly dividend of 50 centers per share -- four times per year you would be paid 50 cents for every share you own. You'll also make money by holding a stock that increases in value over time. In theory, the value of a stock is determined by dividing the value of the company by the number of shares. If a company becomes more valuable, so should your shares.