ABSTRACT
Corporations are owned by their stockholders. The stockowners elect a board of directors, who in turn appoint upper management. Many common stocks pay dividends out of the corporation’s profits, but corporations are under no legal obligation to pay dividends to common stockholders. Some stocks pay low or no dividends but are attractive to investors because the company has growth potential that will hopefully be reflected in rising stock prices. A typical dividend-paying stock might be a well-established utility company
of the tech bubble and the firm subsequently failed (as many did), the stock value may well have gone to zero, leaving you with worthless equity in a nonexistent company. On the other hand, many intelligent and prudent people are heavily invested in common stocks. The reason many investors assume the risks of stock ownership is the possibility of financial rewards. From 1926 to 2001 the S&P 500, a standard index of leading stocks, showed an average return of 10.7%.1 Historically, stocks have provided returns higher than inflation, and many investors value stocks as a fundamental component of their investment portfolio.
