Types of Stocks

Stocks fall into 5 different types:

  • Income Stocks pay unusually large dividends that can be used as a means of generating income without selling the stock, but the price of the stock generally does not rise very quickly.
  • Blue-Chip Stocks are issued by very solid and reliable companies with long histories of consistent growth and stability. Blue-chip stocks usually pay small but regular dividends and maintain a fairly steady price throughout market ups and downs.
  • Growth Stocks are issued by young, entrepreneurial companies that are experiencing a faster growth rate than their general industries. These stocks normally pay little or no dividend because the company needs all of its earnings to finance expansion. Since they are issued by companies with no proven track record, growth stocks are riskier than other types of stocks but also offer more appreciation potential.
  • Cyclical Stocks are issued by companies that are affected by general economic trends. The prices of these stocks tend to go down during recessionary periods and increase during economic booms. Examples of cyclical stock companies include automobile, heavy machinery and home building
  • Defensive Stocks are the opposite of cyclical stocks. Defensive stocks — issued by companies producing staples such as food, beverages, drugs and insurance — typically maintain their value during recessionary periods.

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