What is the difference between stock and dividend,bonds. And how can i buy stocks and what is the place to buy them can anyone please tell me iam new to this world of finance and stock market.
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3 Answers
stocks represent ownership in a company. their price can go up or down depending on how much profit the company makes (or is expected to make). stocks owners are sometimes paid money by the company if the company has extra cash. these payments are called dividends.
bonds represent a debt that a company owes. when you buy a bond, then the company owes that debt to you. typically, the company will pay a small amount of money on a regular basis to the bond owner, then a large lump some at some point in the future. assuming the company does not file bankrupcy, and you keep the bond until it becomes worthless, then you know exactly how much money you will get from buying a bond.
because bonds have a fixed payout (assuming no bankrupcy), they tend to have lower average returns. on the other hand, while stocks have a higher average return, some stocks never return any money.
in the usa, stocks and bonds can be purchased through a brokerage account. examples are etrade, tradeking, or robinhood.com.
before purchasing stocks or bonds, you should probably learn a great deal more about other investment concepts such as: diversification, volatility, interest rates, inflation risk, capital gains taxes, (in the usa: ira's, 401k's, the mortgage interest deduction). at the very least, you will need to decide if you want to buy stocks inside an ira or in a regular brokerage account. you will also probably want to buy a low-expense ration etf (e.g. an index fund etf) unless you feel confident in some other choice.
answered Dec 23, 2015 at 21:09
From Wikipedia - Stock:
The stock (also capital stock) of a corporation constitutes the equity stake of its owners. It represents the residual assets of the company that would be due to stockholders after discharge of all senior claims such as secured and unsecured debt. Stockholders' equity cannot be withdrawn from the company in a way that is intended to be detrimental to the company's creditors
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can re-invest it in the business (called retained earnings), and pay a fraction of this reinvestment as a dividend to shareholders. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the second market.
Thus, stock is about ownership in the company, dividends are the payments those owners receive, which may be additional shares or cash usually, and bonds are about lending money. Stocks are usually bought through brokers on various stock exchanges generally. An exception can be made under "Employee Stock Purchase Plans" and other special cases where an employee may be given stock or options that allow the purchase of shares in the company through various plans. This would apply for Canada and the US where I have experience just as a parting note.
This is without getting into Convertible Bond that also exists:
In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. It is a hybrid security with debt- and equity-like features. It originated in the mid-19th century, and was used by early speculators such as Jacob Little and Daniel Drew to counter market cornering. Convertible bonds are most often issued by companies with a low credit rating and high growth potential.
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Thank u so much for ur valuable information, can i know the place where we can buy the stocks and bonds.I dont know the actual place where it happens and i dont know what is the process to hold and sell the stocks. Dec 24, 2015 at 0:28
Stock basically implies your ownership in the company. If you own 1% ownership in a company, the value of your stake becomes equal to 1% of the valuation of the entire company.
Dividends are basically disbursal of company's profits to its shareholders. By holding stocks of a company, you become eligible to receiving dividends proportional to your ownership in the company. Dividends though are not guaranteed, as the company may incur losses or the management may decide to use the cash for future growth instead of disbursing it to the shareholders.
For example, let's say a company called ABC Inc, is listed on NYSE and has a total of 1 million shares issued. Let's say if you purchase 100 stocks of ABC, your ownership in ABC will become
Ownership = Shares Owned/Shares Issued = 100/1000000 = 0.01%
Let's say that the share price at the time of purchase was $10 each.
Total Investment = Stock Price * Number of Stocks Purchased = $10 * 100 = $1,000
Now, let's say that the company declares a dividend of $1 per share. Then,
Dividend Yield = Dividend/Stock Price = $1/$10 = 10%
If one has to draw analogy with other banking products, one can think of stock and dividend as Fixed Deposits (analogous to stock) and the interest earned on the Fixed Deposit (analogous to dividend).
