A Stock Answer

Q When I buy stock, what am I buying? I see that the company gets its money when the stock is first issued. But after that, how does the company benefit when I buy a share on the open market?

— G.L., Riverside, Calif.

A A share of stock represents a (small) chunk of a real company. If a firm has a million shares outstanding and you buy 100 of them, you own one ten-thousandth of the company. The company does get its money at the one-time issuance of the share, but as shares fluctuate in the open market, companies do care how they fare. A falling stock can make it easier for the firm to get bought out. A rising stock can help insiders with stock or stock options get richer.

Q What are REITs? — R.B., Hickory, N.C.

A Real estate investment trusts (REITs) let you invest in real estate without actually buying any property. They're organizations that combine the capital of many investors to acquire or finance all kinds of real estate, such as offices, hotels or apartments. A REIT is a little like a mutual fund, as its portfolio is professionally managed and diversified, holding many properties, generally income-producing ones. Many REITs trade publicly on major stock exchanges.

REITs have some other twists, too. For starters, corporations or trusts that qualify as REITs generally don't pay corporate income tax and are often exempt from state income tax as well. They must invest most of their assets in real estate and pay out at least 90 percent of their taxable income as dividends. In good years, REIT dividends can run quite high, sometimes topping 10 percent. Learn more at www.reit.com.

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