Callable and redeemable stocks
Callable stocks are stocks that can be redeemed by the issuing
company before the maturity date. Redemption price is usually higher
than the par value of the stocks to increase their stability. Preferred
stocks are generally callable. There are two kinds of redeemable or
callable stocks namely:
1. Mandatory type of callable stocks
2. Optional type of callable stocks
Mandatory type of callable stocks requires the corporation to
redeem the stocks within a specific period of time.
Optional Type of callable stocks does not require the corporation
to redeem the stocks. Stocks may be redeemed at the option of
the corporation.
Sinking Fund is an amount set aside from the earnings of the
corporation specifically earmarked for the redemption of the
stocks.
Convertible stocks are stocks that can be exchanged to other securities of the
corporation either for another class of stocks or bonds at a specified ratio.
Conversion ratio is the rate at which a stock exchanged with other stocks or bonds of
the corporation.
Advantages of convertible stocks:
1. It increases the salability of the stocks because the investor has the chance to
diversify his investments
2. It is also a protection to the stockholder against dilution of the shares of stocks of
the corporation
Par value and no par value stocks
A par value stock is one that has an assigned value on its face.
No par value are those stocks without any designated price on its face.
Restrictions in issuance of no par value stocks:
1. No par value stocks may be sold for less than ₱5.00
2. No par value stock may be issued which are preferred as to assets
3. Stocks without par value cannot be sold on installment basis
4. Bank, trust companies, insurance companies and building and loan associations
may not issue no par value stocks.
5. Capital stock without par value cannot be issued with out the prior approval of the
public service commission.
Guaranteed stocks are those stocks whose dividend payments are assured
by a corporation other than the issuing company.
Deferred stocks – These are stocks whose dividend payments are
postponed for in the future and that is subject to the lapse of a period of
time or the occurrence of a particular event, which allows the corporation
to declare dividends. Examples are as follows:
1. Dividends will be declared five years from the issuance of stocks
2 Dividends will be declared in 2016
3. Dividends will be declared after the attainment of a net income of ₱ 1M
Stock purchase warrants – This is an instrument given to stockholders
giving him the option to buy shares of stocks from the company within a
specific period of time at a stipulated price.
Founder’s shares – These are stocks given to the incorporators of the firm
it gives the founders an extraordinary participation in the profits of the
corporation when the business is good.
Promoter’s shares – Those stocks used for compensating the promoters
for the services they rendered in promoting the corporation
Dividends are corporate profit or earnings set aside by the board of
directors to be distributed to stockholders in proportion of their stock
holdings.
Kinds of Dividends
1. Cash dividends
2. Stock dividends
3. Property dividends
4 Scrip dividends
5. Liquidating dividends
The corporation distributes cash dividends when it has enough
cash to declare as dividends. This will depend on the cash position of
the firm.
Requirements in declaring cash dividends:
1. There must be an income of the corporation
2. The firm has enough cash to be given out as dividends
3. The dividends are declared by the board of directors
4. Notices are sent to the stockholders informing them of the
declaration of cash dividends
Stock dividends arise when the board of directors decides to expand
the business operation and therefore stockholders are given dividends
in its equivalent in shares of stocks of the corporations.
Requirements in the distribution of stock dividends:
1. There must be a corporate profit
2. The profit must be declared by the board of directors in the form of
stocks
3. The stock dividend must be approved by 2/3 of the outstanding
stock in a meeting called for that purpose.
4. A notice must be sent to the stockholders.
Property dividends are those dividends given at the discretion of the
board of directors in the form of properties of the corporation such as
goods or stocks owned by the corporation but issued by other
corporations.
Scrip dividends – is a written certificate issued by the corporation to its
stockholders entitling them to the payment of cash at some future
designated time.
Liquidating dividend – Generally dividends arises from the earnings of a
corporation, but when a corporation is winding up its affairs o would like
to narrow down its operation, they may declare liquidating dividends from
the proceeds of the corporate assets sold
