Last updated: April 13, 2016

What is a Stock?

When you buy a stock, you are purchasing an ownership interest in the issuing company. A unit of ownership interest is called a share.

If the company performs well, you reap the rewards as share prices increase. If the company performs poorly, the value of the stock declines. 

Some stocks pay dividends. These represent the earnings that the company distributes to its shareholders.

Companies often issue two classes of stock:

  • Common stock
    • (1) has no fixed dividend rate and
    • (2) is last to share in the net assets of the company when it is dissolved.
  • Preferred stock 
    • (1) has a claim on the earnings of the company based upon a fixed dividend rate and, 
    • (2) upon dissolution, shares in the net assets of company prior to other classes of stock.

Stocks may be further divided into categories based on the size or type of company and performance characteristics.

*The information on this page is credited to IPT and Kiplinger. Their original materials are made available on the Kansas Securities Commissioner's website.