What Is Guaranteed Stock?
Guaranteed stock has two meanings, one applied to dividends and one applied to inventory. The more common reference is to an infrequently used form of common or preferred stock, in which the dividends are guaranteed by one or more other companies. Guaranteed stock issues, like guaranteed bonds, have most often used by railroads and public utilities. The guaranteed dividend can increase the stock's price.
The second meaning for guaranteed stock correlates to a company's physical inventory. In this use of the term, guaranteed stock refers to commonly purchased items that a company always keeps a supply of for customers to purchase.
Key Takeaways
- Guaranteed stock is a rarely used form of preferred stock, where a party other than the original company guarantees dividends will be paid.
- Guaranteed stock issues, like guaranteed bonds, have most often used by railroads and public utilities.
- Guaranteed stock can also be a reference to the physical inventory that a company has available, particularly in the retail industry.
- With guaranteed stock, a third party must come in to essentially vouch for a party that cannot guarantee dividends.
- By having guaranteed stock, or a full supply of all of its inventory, a company can acquire an advantage over competitors who do not have all their products available.
Understanding Guaranteed Stock
Guaranteed stock in the financial world is used, on rare occasions, when a company either can't pay dividends or is in danger of not being able to continue paying dividends. A company that doesn't earn a profit can't pay dividends. A company that can temporarily pay dividends but has considerable financial issues that could threaten future profitability cannot guarantee dividends in the future. In both scenarios, the company cannot guarantee that it will be able to pay dividends and continue doing so; as a result, a third party must come in to guarantee that the company will pay the dividend.
This is different from standard preferred stock, which is typically guaranteed, even in the case of bankruptcy. Preferred stockholders receive priority over common stockholders, who cannot receive a dividend until the preferred shareholders' dividend has been paid in full. If the company files for bankruptcy and must liquidate assets, preferred stockholders receive payments before the common stockholders, but not before the creditors, secured creditors, general creditors, andbondholders.
Guaranteed stock is used infrequently, on occasions when a company is unable to pay dividends or is unlikely to be able to continue paying dividends.
Clarifying Guaranteed Stock Inventory
However, there is some risk with this strategy, as the company faces the costs associated with carrying a large amount of inventory. It may not want to or be able to spend the money needed to have all of its inventory guaranteed.
In addition, if the inventory fails to sell by a certain time period, it may that it is stuck with a surplus, which it then has to sell at a discount, causing it to lose money. Even worse, particularly in terms of technology, inventory can become obsolete and potentially incapable of being sold.
By having guaranteed stock, or a full supply of all of its inventory, a company can acquire an advantage over competitors who do not have all their products available. Customers will have more and better options insofar as what they can buy, and any orders can be fulfilled and delivered faster.
FAQs
Guarantee stock is a type of preferred stock that guarantees a dividend payment by someone other than the issuer, usually a parent corporation. It is a fixed, non-withdrawal investment in a building-and-loan association that guarantees a fixed dividend or interest rate to all other investors in the association.
What is a guaranteed stock? ›
Guaranteed stock is a rarely used form of preferred stock, where a party other than the original company guarantees dividends will be paid. Guaranteed stock issues, like guaranteed bonds, have most often used by railroads and public utilities.
What is an example of a guaranteed stock? ›
Examples: Some examples of guaranteed stocks include equity-linked notes, structured notes, and capital-protected investments. These investments are typically offered by large financial institutions, such as banks, and are sold to investors looking for a low-risk investment.
What is a stock guarantee? ›
Guaranteed stock is a type of stock that promises to pay a dividend to the shareholder no matter what. This means that even if the company doesn't make a profit, the shareholder will still get paid. It's like a guarantee that the shareholder will receive some money.
How does getting money back from stocks work? ›
That return generally comes in two possible ways:
- The stock's price appreciates, which means it goes up. You can then sell the stock for a profit if you'd like.
- The stock pays dividends. Not all stocks pay dividends, but many do.
How do guaranteed funds work? ›
A guaranteed fund is a type of collective investment scheme that guarantees to pay back a pre-determined percentage of the invested capital, subject to satisfaction of certain pre-determined conditions.
What stocks are guaranteed money? ›
10 Awesome Dividend Stocks for Predictable Income
Stock | Implied upside over Jan. 24 close | Forward yield |
---|
International Business Machines Corp. (IBM) | -2.3% | 3.8% |
Sysco Corp. (SYY) | 6.7% | 2.7% |
Target Corp. (TGT) | 14.9% | 3.2% |
PepsiCo Inc. (PEP) | 26.8% | 3% |
6 more rowsJan 25, 2024
Are there any investments with guaranteed returns? ›
Annuities are low-risk investments that provide fixed, steady income in return for an upfront investment -- guaranteed either for a set period of time, or for life.
What is an example for guaranteed? ›
Examples from Collins dictionaries
Success is not guaranteed. Their new product is a guaranteed success. Morocco offers excitement and guaranteed sunshine. They want a guaranteed minimum wage.
What is an example of guaranteed pay? ›
Another example of a guaranteed annual wage plan is when an employer agrees to provide a certain number of hours of work each year, regardless of whether there is work available or not. This helps to ensure that employees have a consistent income and can plan their finances accordingly.
A guarantee is a promise to fix, free of charge, any faults which might arise within a certain period. A written guarantee is better than one given verbally.
What is the difference between shares and guarantee? ›
Most limited companies are 'limited by shares'. This means they're owned by shareholders, who have certain rights. For example, directors may need shareholders to vote and agree changes to the company. Companies limited by guarantee have guarantors and a 'guaranteed amount' instead of shareholders and shares.
Why is it so hard to get a medallion stamp? ›
Medallion signature guarantees expose financial institutions to risks and liabilities; therefore, they do not issue them readily or to just anyone.
Who gets the money you lose in stocks? ›
“In other words, the money did not exist or disappear for long-term investors if you did not make any transactions. However, for short-term investors, when stock prices go up or down, the money would be transferred among them as a zero-sum game, i.e. your losses would be others' gains, and vice versa.”
What if I lose all my money in stocks? ›
You get nothing. you just lost all of your investment. Had you bought the stocks with your own 2000 rupees, you might have bought 3 stocks, and the loss would have been capped to 300 rupees (550 buy price - 450 sell price). You would have still left with 1700 rupees to do another trade.
Can you just cash out your stocks? ›
You can withdraw the money you have invested in stock markets anytime as no rules are preventing you from it. However, there are fee, commissions and costs that you have to consider.
What is an example of a guaranteed issue? ›
Example of guaranteed issue life insurance
Your medical condition means you likely won't qualify for traditional life insurance, but you can apply for a guaranteed issue life policy that may provide your family with enough money to pay for your end-of-life expenses.
What is a guaranteed investment option? ›
Guaranteed investment income is a type of investment product offered by insurance companies that allow clients to invest in equity, bond, and/or index fund while providing a promise of a predefined minimum value of the fund (usually, the initial investment amount) will be available at the fund's maturity or when the ...
What is an example of a guaranteed investment contract? ›
Example of a Guaranteed Investment Contract
Let's say that there is a company called ABC Company. ABC Company decides to purchase a GIC from an insurance provider, XYZ Insurance, for the employees in its pension plan. In return, XYZ Insurance guarantees the company a return on the investment.
Is investing guaranteed to make money? ›
It's important to note that while these strategies have historically shown potential for significant returns, all investments carry risk, and past performance doesn't guarantee future results.