Half Stock

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Last Updated:December 13, 2022

Classified under equity security, Half Stock is sold at face value, which is half the standard price value. The par value here refers to the value set by the organization in its chartered documents.

Aside from its lessened face value, this stock acts as a regular share of stock, such as common or preferred stock.

Although the common stock is possible, this stock is usually preferred and typically entails a dividend to satisfy.

With this being said, a half stock is not security selling at a deducted rate, but rather half of a security selling and a guarantee of the properly fixed return distribution.

It is important to note that the term par value is often referred to and interchanged with the term face value. Par value is a term commonly used in bonds, but shares are also designated par value in terms of stock.

These shares tend to have an extremely low par value, such as a fraction of one cent per share. In relation, the preferred stock generally has a higher par value as it's important when applying dividends.

The value of a stock is assigned by growth potential. So when evaluating a common stock, a regular share of that stock and a half stock typically have the same value.

On the other hand, preferred stock may receive a higher claim on company proceeds when it comes to being liquidated rather than a half-stock share of preferred stock.

When it comes to any stock market investment, half stock included, it is necessary for investors to properly research…

All information on the stock or bond in question
Whether they have sufficient income to invest that won't negatively affect their company or current lifestyle.
Whether or not they can cut their losses and accept the financial damages that will possibly come with losing the investment

Even though investing in half stock might halve the anticipated risk, this does not eliminate the need to analyze a risk profile thoroughly. It is important to implement that all stock market securities carry plausible risk regardless of what you buy.

Common Stock Vs. Preferred Stock

Although there are a lot of differences between the stocks, common and preferred stocks are two good resources that investors can use to attempt to profit from the future growth and success of a company.

Common Stock

Serves investors as proof of ownership in a company, allowing them voting rights within said company. These stockholders are entitled to the possibility of dividends but not at the same rate as preferred stockholders, bondholders, and lenders. Common stock is the most popular kind of stock amongst investors.

Preferred Stock

Implies partial ownership of a company but prevents voting rights within said company. These stockholders receive high priority in dividends, resulting in high return rates.

Common stockholders, in liquidation cases, receive any remaining dividends after preferred stockholders, bondholders, and lenders have already been paid. Although preferred stock allows investors a higher take in dividends, it limits stockholders voting rights within a company.

Both common stock and preferred stock represent a portion of ownership within a company, but not equally.

The Breakdown:

Common stock DOES allow shareholders voting rights.
Preferred stock DOES NOT allow shareholders voting rights.
Common stock shareholders typically have the last priority on dividends, so they are paid out AFTER preferred stock shareholders.
Preferred stock shareholders typically prioritize dividends, so they are paid out BEFORE common stock shareholders.

How is Half Stock used? There are many different kinds of investors with various motives and practices for using half-stock. Some of these scenarios include…

Short-term investors who prefer to make small but quick profits by engaging in a lot of trades at the same time
Long-term investors who are looking to achieve exposure to a company that they, under other conditions, would not have been able to invest in
Cautious investors seeking to gain half stock in preferred shares at vulnerable companies know they stand a higher chance of getting their investment back even if the company is liquidated or bankrupted.
Traders who are simply looking to diversify their portfolios even if this share doesn't bring in as much profit as their other stock

Real World Example

In this example, company XYZ has preferred stock at $1000, but they decide to offer half stock as well. Since half stock has a par value of half the standard value, they will be issuing it at $500.

This half stock is in preferred stock, so although it still has priority over common stock, it grants the stockholder lesser claim on company assets if liquidation or bankruptcy occurs.

Predictably, business is booming, and company XYZ declares a 5% dividend. The table below properly illustrates that distribution.

Distribution
Type of Stock	Initial investment ($)	Return ($R) after a 5% Dividend
Preferred	1000	R 50
Half	500	R 25

It is important to note that both stocks produce an equal dividend yield. The preferred stock shareholder earned $50, while the half-stock shareholder earned $25, which is 5% of what they initially invested.

This allows investors to acquire shares of company XZY at a more affordable rate, but it also means that capital will be earned correspondingly to the rate they paid.

Key Takeaways

Half stock is a security sold at a par value of approximately 50% of the standard value.
It is most frequently associated with preferred stock and often requires dividend distribution.
The preferred stocks imply partial company ownership but prevent voting rights within said company.
The common stock serves investors as proof of company ownership, allowing them voting rights within said company.
Even though investing in this stock might be splitting the anticipated risk, it’s still very important to thoroughly analyze its risk profile.
Aside from its lowered face value, this stock acts just as a regular stock share would and can be both a common stock or a preferred stock.
The value of a stock is assigned by growth potential.