A stock represents ownership of a company. Think of it less like owning a slice of pie and more like owning a slice of a business that grows or shrinks based on how the company performs. If the company does well, your slice is worth more. If it doesn't, your slice is worth less, or potentially worthless. Shares can represent a very small fraction of a company too, in some cases less than 0.001%. If you buy more shares, your piece of the company gets bigger.
The objective of owning a stock is that the price of your shares increases in value and you sell to someone else at this higher price. But ownership isn't one-size-fits-all. Most retail investors hold common shares, which typically come with one vote per share on matters like electing the board of directors. Some companies, though, issue multiple share classes with unequal voting power, and the class sold to the public on the stock market often carries less voting weight (sometimes significantly less, sometimes none) than the class held by founders or executives. There's also a second broad category, preferred shares, which generally skip voting rights altogether in exchange for a fixed, priority dividend. If you want to know whether your stock comes with a vote, and how much that vote is worth, check which class and type of share you actually hold; it isn't a given. Most retail investors feel like their ownership is too little to have an impact, whereas others enjoy participating in the decision-making.
Most stocks are purchased and sold through a stock exchange, such as the Toronto Stock Exchange (TSX) or the New York Stock Exchange (NYSE). In order to access these exchanges, investors go through a brokerage. With the increased efficiency of electronic transactions, buying and selling stocks can be done very quickly.
Dividend paying stocks
The initial public offering (IPO) is when a company first sells its shares to the public. Once a company is public, it has certain obligations to appeal to its shareholders, and one chief method is dividends. A dividend is a company redistributing some of its cash to its shareholders. A company may choose to do this monthly, quarterly, annually, or not at all. For holders of common shares, dividends are discretionary and can be cut or suspended at any time. Preferred shareholders, by contrast, are typically promised a fixed dividend and get paid before common shareholders do. Some stocks are known as consistent dividend paying companies, which certain investors rely on for reliable dividend income. Other companies choose not to pay a dividend so that they can reinvest all of their cash into growing the company.
In order to qualify for a dividend payment, the stock must be owned on a specific date known as the record date. The dividend is often paid at a later time known as the payment date, but as long as you owned the stock on the record date, you'll be entitled to the dividend.
Purchasing a stock
Purchasing a stock can be done in seconds through a brokerage. You just need the money and to know the stock symbol (a short code that identifies the company). To find a stock symbol, a quick search of the company's stock online will provide it.
Stock settlement
Buying a stock may take seconds, but the actual transfer of ownership does not complete until the following business day. For instance, if you purchase a stock on Monday, you'll become the owner of that stock on Tuesday. This also applies to selling a security, where you'll remain the owner for one business day following the sale.
This settlement period does not prevent an investor from actively trading the security, and it can be bought and sold the same day. In this case, both the purchase and sale will settle the following business day, and at no point will you have technically been the owner.
While the settlement period does not impact trading, there are specific cases where this matters, such as the payment of dividends. A company that pays a dividend will only issue it to the owners it has on record on a specific date.
Summary
A stock represents ownership in a company, measured by how many shares are owned. What that ownership actually entitles you to, whether that's voting rights, dividends, or both, depends on the type of share you hold. Investors purchase stocks to benefit from dividends, voting rights where they apply, and the prospect of selling their stock for more than they paid. Trading a stock can be done extremely quickly through a brokerage.
