What Is a Large Cap Stock?

What Is a Large Cap Stock?
••• Illustration: Svilen Mushkatov, stock.xchng

One way to differentiate between stocks is to look at their market capitalization. Stocks are generally divided into three types: Small cap, mid cap, and large cap. Each of these three types of stock has a different level of market capitalization.

Market Capitalization Defined

Market capitalization is the general agreed upon value of a company, including all of its assets. This value is then divided by the total number of stock shares issued to define a share price. For example, if a company has a market capitalization of $10 billion and $1 billion shares of stock have been issued, the stock price would be around $10 per share.

Large Cap Capitalization

Large cap stocks are generally defined as those with market capitalizations of more than $10 billion.

Examples of Large Cap Stocks

Companies whose stock is considered large cap include Microsoft, IBM and 3M.

Growth Factors

Large cap stocks are so large that they tend not to have much room to grow. They are less popular with investors looking to increase capital levels.

Income Stability

A large cap is more likely to pay dividends. This is because of its stability and higher earning potential. Large cap stocks are, therefore, more popular as an income stabilization stock.