What Is Half Stock?
Let me explain what a half stock is: it's a security sold with a par value that's 50% of what's considered the standard price. You know, par value is the face value of a bond or sometimes a stock. This half stock can be either common or preferred, and aside from that lower par value, it behaves just like a regular share.
Key Takeaways
Here's what you need to remember: a half stock is a security with a face value about half the standard. It can be common or preferred and acts like a regular share, except for the reduced par value. That said, it's usually preferred stock, not common, and it typically involves dividends.
Half Stock Explained
When we talk about the value of common stock, it's often the same for regular shares and half stocks because a lot of that value comes from growth potential. But par value matters more for dividends, which is why it's key for preferred stock. Plus, preferred stock might have a stronger claim if a company gets liquidated—though a half stock version would get less in that scenario.
Par value is a term you hear more with bonds—it's the face value, the principal the investor lends to the issuer. For stocks, shares get a par value too, but it's usually small and arbitrary, like $0.01 per share. Preferred stock gets a higher one because it's used to figure out dividends.
Common Stock Versus Preferred Stock
There are some key differences between common and preferred stock, even if they're small. Common stock means ownership in a corporation—you get to elect the board and vote on policies. But common shareholders are at the bottom of the priority list. If the company liquidates, you only get assets after bondholders, preferred shareholders, and other debts are paid.
Preferred stock gives you a higher claim on assets and earnings than common stock. Companies aren't obligated to pay dividends on common stock, but with preferred, you expect them—it's a big selling point. Preferred dividends come before common ones, and these shares usually don't have voting rights.
Preferred stock isn't as common as common stock. Think of shares from Bank of America (BAC) or MetLife (MET) as examples.
Real World Example
A half stock's par value is typically half of normal. Take an e-commerce company like BuySell with preferred stock at $100 par value. If they issue half stock, it's still preferred and ranks above common stock, but it pays smaller dividends and gives fewer claims in bankruptcy liquidation. So, they might issue it at $50 par value—that's your half stock.
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