Identification

• Corporations issue shares of common stock to raise financing. In exchange, investors who purchase common shares are awarded with equity ownership stakes.
  
  

Features

• Total returns from common stock include dividend income and capital gains. Corporations pay dividends out of net income; capital gains refers to appreciation in the value of the stock. Corporations featuring strong earnings growth are likely to increase dividend payments and become more valuable investments for shareholders.
  
  

Considerations

• Common stock asset claims are junior to bonds and preferred shares. Corporations must pay dividends on preferred stock, and interest on bonds, before paying any dividends to common shareholders. These junior claims are the reason for common stock volatility.
  
  

Misconceptions

• Bond interest payments are tax-deductible for corporations. However, common stock dividend payments are not tax-deductible.
  
  

Strategy

• Common stock investments carry voting rights. Large investors can control a company by purchasing more than 50 percent of its outstanding common stock. Acquisitions are complete when outsiders negotiate deals to own all outstanding common shares.