The different types of stocks

Dividend stocks and non-dividend stocks

Dividend stocks and non-dividend stocks are two types of stocks that differ in how they compensate investors.

• Dividend stocks: These distribute a portion of their profits to shareholders at regular intervals. Dividend stocks offer a steady stream of profit sharing, as well as the potential for capital appreciation if the stock price increases. They are generally considered less risky and more stable than non-dividend stocks, as they can indicate that a company is making a profit and is confident in its future prospects. However, dividend stocks may also have lower growth potential and higher tax implications than non-dividend stocks. It’s important to note that dividends are never guaranteed. Some examples of dividend stocks are Coca-Cola, Johnson & Johnson and Apple.
• Non-dividend stocks: These companies do not pay dividends to their shareholders. Non-dividend stocks rely on capital appreciation to compensate their investors. They are often seen as riskier and more volatile than dividend stocks, as they reflect the uncertainty and unpredictability of the market. However, non-dividend stocks can also have higher growth potential and lower tax implications than dividend stocks. Examples include Amazon, Meta and Netflix.

Common stock & Preferred stock

Common stock

Common stocks give investors partial ownership in a company. And they give them voting rights and a claim on the company's profits. Like all stocks, they are subject to market risk, which means that their value may fluctuate due to shifts in supply and demand, economic factors, investor outlook news and events. Common stocks may pay dividends, but they are not guaranteed. Some examples of common stocks are Apple, Microsoft and Alphabet.

Preferred stock

Preferred stocks are a type of investment that represents ownership in a company but with characteristics that blend features of both stocks and bonds. They arehares of ownership in a company that give investors a claim on profits and assets but not voting rights. These types of stocks have a higher priority than common stocks when it comes to dividend payments and liquidation. Preferred stocks pay fixed or variable dividends, which may be taxed at a lower rate than bond interest. A few companies that offer preferred stocks are Wells Fargo & Company, Vodafone Group, BP and AT&T Inc.

Large-cap stocks, mid-cap stocks and small-cap stocks:

Market capitalisation, or market cap for short, is the total value of a publicly traded company’s outstanding shares. Stocks are categorised as large, mid and small-cap.

• Mid cap: Companies with a market capitalisation between $2 billion and $10 billion are considered mid-cap stocks. These companies are usually in the growth stage of their business cycle, expanding their market share and customer base, while focusing on increasing their revenues and earnings. Mid-cap stocks offer a balance between the stability of large-cap stocks and the growth potential of small-cap stocks. Examples include Shopify, Zoom and Spotify.
• Large cap: Large-cap stocks are shares of companies with a market capitalisation of $10 billion or more. These companies are typically well-established and stable, and they often pay regular dividends to shareholders. Some large-cap stocks are Walmart, ExxonMobil, Microsoft and Amazon. Large-cap stocks tend to be less volatile and more resilient during market downturns, but they may also have lower growth potential and innovation than smaller companies.
• Small cap: Firms with a market capitalisation of less than $2 billion are considered as small-cap stocks. These companies are typically young, emerging and focused on a certain niche. Due to their small size, they sometimes have a high growth potential and can innovate more easily. On the other hand, they tend to be riskier and more volatile, as they are more sensitive to market fluctuations, economic conditions and competitive pressures. Some small-cap stocks you might recognise are Roku, Beyond Meat and JetBlue Airlines.

Sector stocks

Stocks that belong to the same industry or sector are considered as sector stocks. They have similar business models, products, services, customers and competitors. Sector stocks are grouped together based on the Global Industry Classification Standard (GICS), which divides the market into 11 sectors, such as Energy, Materials, Industrials, Utilities and so on.

Domestic and international stocks

Domestic and international stocks are two ways to categorise stocks that differ in where they are based and traded.

• Domestic stocks are shares of companies that are located and listed in the same country as the investor.
• International stocks are shares of companies that are located and listed in a different country than the investor.

Investing in a mix of both domestic and international stocks can help diversify your portfolio, potentially reduce risk and provide access to more opportunities in the global market. However, investing in international stocks also involves potential challenges, such as currency fluctuations, higher fees and lower liquidity.

Defensive stocks

Defensive stocks are typically less affected by economic cycles. These companies tend to sell products or services that are always in demand, such as food, utilities, health care and household goods. Defensive stocks can generally be considered as stable and dividend-paying. However, they may also have lower growth potential and innovation than other stocks and they may not perform as well as the market during economic expansions. Examples of defensive stocks are Procter & Gamble, Johnson & Johnson and Coca-Cola.

Cyclical stocks and non-cyclical stocks

Stocks that are affected by the changes in the economy are considered cyclical stocks. They tend to follow the cycles of expansion, peak, recession and recovery. Cyclical stocks include companies that sell discretionary items and services, such as cars, travel and clothing. These are the products that people buy more of when the economy is doing well but cut back on when the economy is doing poorly. Some examples of cyclical stocks are Starbucks, Nike and Ford.

Non-cyclical stocks are stocks of companies that are not affected by the changes in the economy. They tend to outperform the market even when the economic growth is slowing. Non-cyclical stocks include companies that sell basic goods and services, such as food, utilities, health care and household products. These are the essentials that people need and buy regardless of the economic conditions. Non-cyclical stocks are more stable and less risky, but they may also have lower growth potential. Some examples of non-cyclical stocks are Campbell Soup Company, Procter & Gamble and Johnson & Johnson.

ESG stocks

Companies that are considered as ESG stocks typically meet high standards of environmental, social and governance (ESG) criteria. These criteria measure how well a company manages its impact on the natural environment, its relationship with its stakeholders and its internal policies/practices.

Blue chip stocks

Blue chips are companies with a large market capitalisation, a strong reputation, and a long history of financial performance. While they are often leaders in their industries and sectors, it is important to note that they are not immune to market fluctuations and economic downturns. Despite their stability, blue chip stocks may experience periods of volatility. Additionally, while they have loyal customers and shareholders, this does not guarantee immunity from competition or potential changes in consumer preferences. Although blue chip stocks often pay regular dividends, it is important to consider that dividend payments are subject to the company's financial health and market conditions. Some examples of blue chip stocks include Apple, Walmart, and Coca-Cola, which have achieved success but are still subject to the risks inherent in any investment.

Penny stocks

Penny stocks are shares of small and risky companies that trade for less than $5 per share. They are usually not listed on major stock exchanges and are traded over the counter (OTC). Penny stocks can offer high returns if the company is successful, but they can also lose all or more of their value if the company fails. Penny stocks are subject to fraud, manipulation and lack of information, making them difficult to research and analyse.