Full Stock
What Is Full Stock?
Full stock is a stock with a par value of $100 per share. A full stock issue can be either a preferred share or common share, in spite of the fact that for down to earth purposes today par value of common stock is set at zero or at a price exceptionally close to nothing. Subsequently, full stock typically alludes to a preferred share with a par value of $100.
Understanding Full Stock
Preferred stock with a par value of $100 per share is full stock. Preferred stocks share qualities with bonds, including that they have a face value. The yield on a preferred share is just calculated as the annual dividend separated by $100 (or face value). For instance, an annual dividend payment of $7.50 per share is equivalent to a 7.5% yield.
Preferred shareholders are paid out ahead of common shareholders in the event of the company's bankruptcy, and are paid available dividends prior to common shareholders. The price of preferred shares varies like bonds, meaning preferred shareholders don't straightforwardly benefit from the growth of the company like common shareholders do. Preferred shareholders typically don't have voting rights, though common shareholders do.
Preferred shares can have numerous highlights that will influence how they are priced and traded:
Common stock is generally issued with a zero par value or something just nominally above it for accounting. $0.01 par value is regular, as is $0.001, etc, for companies with shares outstanding. Apple Inc. (AAPL), for instance, set the par value of its common stock at $0.00001 per share. The purpose of unimportant common stock par values is to deliver any expected liability to stockholders meaningless assuming the stock became worthless. In the beginning of public companies, when share prices of full stock fell well below $100 or sank to nothing in a bankruptcy, shareholders who owned full stock made claims against the companies to be restored at $100.
Par value, if something over zero, is part of a corporation's legal capital; it is known as paid-in capital (or paid-up capital). The portion in excess of this nominal value is the firm's additional paid-in capital. For instance, a firm that issues a share of $0.01 par value stock for $30 will credit the Common Stock account (in Shareholders' Equity) a penny. The extra paid-in capital account will be credited $29.99 for that single share issued.
Full Stock Example as Interest Rates Change
Expect that Bank of America Corp. (BAC) issues a $100 par value preferred share with a 6% dividend. A holder of 100 preferred shares would receive $600 in dividends every year (100 shares x ($100 x 0.06)). Their cost upfront is $10,000 ($100 x 100 shares).
While the par value is $100, the price on the secondary market will vary as interest rates change. For instance, assuming comparable companies are paying 5%, receiving 6% is better so the preferred stock will trade above $100. In the event that the going rate is 8% for comparable companies, 6% isn't extremely alluring, thus the preferred stock will trade at under $100.
Preferred stocks are perpetual in nature. In the event that interest rates rise, the preferred share price will fall, and there is no guarantee the investor will get their face value back, yet they will continue to receive the dividend. In the event that interest rates fall, the preferred shareholder might have the option to sell the preferred for more than $100, or the company might call the shares in and supplant them with lower-rate preferreds.
Features
- This typically alludes to preferred shares, as common stock has a face value of zero or close to nothing.
- Preferred shares and common shares have various upsides and downsides, for both the company and shareholders.
- Full stock is shares that have a face value of $100.
