Half Stock Definition: A half stock is a unique security with a par value that is 50% of the standard price. The par value, or face value, can apply to both bonds and stocks. A half stock functions as a regular share, but with a reduced par value, and can be either common or preferred stock.
Key Takeaways: Half stocks are securities with a face value approximately half of the standard price. They can be common or preferred stocks, with the only difference being the reduced par value. Typically, half stocks are preferred stocks, often involving dividend payments. Half Stock Details: The valuation of common stock is generally the same for both regular shares and half stocks, as stock value is largely based on growth potential. Par value plays a crucial role in determining dividends, making it more significant for preferred stocks. In the event of liquidation, preferred stocks, including half stocks, have a higher claim on company proceeds. Par Value in Stocks and Bonds: Par value is more commonly associated with bonds, representing the principal amount lent to the issuer. In stocks, par value is usually a small, arbitrary number like $0.01 per share. However, preferred stock often has a higher par value for dividend calculation purposes. Common vs. Preferred Stock: Common stock represents ownership in a corporation, with shareholders electing the board of directors and voting on policy. They are low in the priority for company assets in liquidation. Preferred stock has a higher claim on assets and earnings, with an expectation of dividends. Preferred shares do not typically carry voting rights and must be paid dividends before common shareholders. Real World Example: Consider an e-commerce company, BuySell, with a preferred stock par value of $100. A half stock in this context would have a par value of $50, typically representing a preferred stock.In addition to its regular stock offerings, the company has decided to issue half stock.
Half stock, which is a type of preferred stock, maintains a higher priority than common stock in terms of dividend payments and asset claims in the event of bankruptcy. However, due to its nature as half stock, the dividend payouts to shareholders are reduced, and the claims on assets are also decreased. BuySell is offering preferred stock with a par value of $50, which qualifies it as half stock.