What Is A Share?
When companies need to raise money, they issue a share. The most commonly known shares are publicly listed shares meaning the company is listed on the stock exchange. This happens when the company does an Initial Public Offering (IPO), read more about them here.
Stock exchanges vary from country to country and they give companies the chance to reach investors. When you buy a share in a company you effectively own a part of that company and the chance to make a profit if the company does well.
When you buy a share, you become a shareholder in a business and you may acquire certain voting rights depending on the class of shares you buy, although only very large shareholders have any real say in how the company is run.
Shares are also known as equities, securities, or stocks.
What are the benefits and risks of share investing?
Shares are considered the riskiest of the asset classes because they can be bought and sold quickly which makes share more volatile. Shares are also dependable on consumer trends and media perspective.
All shares can rise in value over time and you may be able to sell your shares for more than you purchased them for. The difference in the purchase and sale price of shares is more commonly referred to as capital growth.
There are two main types of shares, growth shares and income (defensive) shares.
Growth shares typically have higher levels of growth and carry more risk as they are often newer less established companies. Income shares have strong dividend yields and typically provide less risk as these companies are often larger and well established.
Not all companies pay dividends. If they do, they will typically announce the size of the dividend when the release their full or half yearly results.
What is a dividend?
When a company makes a profit, they may choose to distribute a portion to its profits to its shareholders. This is done through a dividend payment.
Many companies listed on the stock exchange will elect to pay dividends twice a year, this is usually known as an ‘interim dividend’, which means it is paid halfway through the financial year and a ‘final dividend’, paid at the end of the financial year.
Companies can however choose to pay dividends more or less frequently. If a company hasn’t made a profit or chooses to reinvest its profits back into the business then it may not pay a dividend at all.
When you purchase a share, it is wise to check whether a share is trading 'cum' or 'ex-dividend' before you trade.
An ex-dividend date is set at four business days prior to the record date. To be entitled to the dividend you must purchase the shares before the ex-dividend date. The record date is 5.00pm on the date a company closes its share register to determine which shareholders are entitled to receive the current dividend. It is the date when all changes to registration details must be finalised.
If you buy the shares before the ex-dividend date you will be buying them 'cum dividend' which means you will get the current dividend. Whereas, if you buy shares on or after the ex-dividend date you will miss out on the current dividend.
In the lead up to the ex-dividend date the share price will often rise due to the heightened demand for a share with a dividend attached. Similarly, the share price may fall once the ex-dividend date passes. The fall in share price is usually by the value of the dividend released as the company is giving back part of its value to shareholders.
How do I buy and sell shares?
All shares listed on the stock exchanges around the world, can only be bought or sold through a broker. A broker can provide a range of services including the provision of advice on which shares to buy or sell. A stockbroker acts as your agent to buy or sell shares on your behalf, for which a fee is charged. Most stockbroking firms require you to provide funds prior to accepting your first order to buy shares.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.
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