What is the difference between stocks and bonds?

Stocks, or shares of stock, represent an ownership interest in a corporation. Bonds are a form of long-term debt in which the issuing corporation promises to pay the principal amount at a specific date.

Stocks pay dividends to the owners, but only if the corporation declares a dividend. Dividends are a distribution of a corporation’s profits. Bonds pay interest to the bondholders.  Generally, the bond contract requires that a fixed interest payment be made every six months.

Every corporation has common stock. Some corporations issue preferred stock in addition to its common stock. Many corporations do not issue bonds.

The stocks and bonds issued by the largest corporations are often traded on stock and bond exchanges. Stocks and bonds of smaller corporations are often held by investors and are never traded on an exchange.

Learn more at Bonds Payable and at Stockholders’ Equity.

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