Shares2222

The extract taken from “Investing in stocks and shares” from Dr. John White gives the reader an introduction to the concept of shares:

To start with, a share gives the owner the right of owing a ‘share’ of the company’s assets, receiving periodical dividends and voting in the company's annual general meeting (AGM), in proportion with the amount of shares owned.

The great majority of shares have a nominal value that represent the asset value of the company, which means that shares can be sold at a different price from its nominal value (usually 25p), and also showing the potential future profits. There are also some non-voting shares represented that differ from the previous ones in the right to vote in the firm’s and that consist of providing the control of the business to the family that has started the company. However, they are preferred by very few investors and are therefore cheaper and less traded.

Another basic concept related to shares are the dividends. John White defines them as the part of the profits assigned to shareholders in proportion to its profits; the rest of them are used to favor the internal growth of the enterprise. The number of times the net dividends could have paid to its shareholders is known as the cover of the dividend.

Finally, he ends up with the price to earnings (P/E) and the yield. The P/E ratio is known as the number of years we would have to wait in order for the dividends of the stockholders to pay for the current price of the stock. The yield, as the real amount given to the owners of securities (represented as a net percentage of the share price).The yield in each country could be lower than the interest obtained from local bonds, simply because of the opportunity cost and the risk taken when not investing. As the return for the shares decreases, the dividends paid to the investors increase.

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