Callable Preferred Stock

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Definition: Callable Preferred Stock

Callable preferred stock is a type of stock, which is given to preferred customers, but is callable in nature.

Let us understand stock first, stock is the capital raised by a corporation or company by the issue of ‘shares’. So we put in the simple terms, if you own a stock of a company you are part owner of the company. So basically if you own a stock of a company it means that you are one of the many shareholders/owners of the company and you can claim (in the ratio of your stock) everything the company owns. The meaning of the terms stock or equity or shares in this respect mean the same thing. The stocks issued by company are of two types: Common and Preferred. Preferred stock are those stock owners who are entitled to fixed dividends every financial year and who’s dividends have to be paid before the dividends of common shareholders can be paid. These preferred stock holders do not have voting rights during the annual general meeting, but as seen they have a higher claim on earnings and assets of a company than the common share holder.

So callable preferred stock is a callable stock, this gives the issuer ie the company the right to call back or “call in” the stocks back to the company. This can be done by the company after a previously set date and also at a previously set price. These all details are present in the prospectus of the issue and cannot be changed later. It is also called redeemable preferred stock.

Let us understand why do companies do issue these type of stocks. Basically t gives company flexibility to call back their shares if interest rates decline or if it feels it can issue preferred stock later at a lower interest rate.



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