When you buy stock in a corporation, you own part of that company. This gives you a vote at annual shareholder meetings, and a right to a share of future profits.

When a company pays out profits to the shareholder, the money received is called a “dividend”. The corporation’s board of directors chooses when to declare a dividend and how much to pay. Most older and larger companies pay a regular dividend, most newer and smaller companies do not. Newer companies prefer to use profits for research and development, expansion into new markets, and “growing” the business.

The average investor buys stock hoping that the stock’s price will rise, so the shares can be sold at a profit. This will happen if more investors want to buy stock in a company than wish to sell. Usually, the potential of a small dividend check is of little concern.

What is usually responsible for increased interest in a company’s stock is the prospect of the company’s sales and profits going up. A company who is a leader in a hot industry will usually see its share price rise dramatically.

Investors take the risk of the price falling because they hope to make more money in the market, than they can with safe investments such as bank CD’s or government bonds.