What is callable stock?

Callable stock is an ownership interest in a corporation that can be “called-in” by the corporation at a specified price.

For example, a corporation might issue 9% $100 Preferred Stock. The stock agreement (indenture) states that the stock is callable by the corporation after three years at $109 per share plus any accrued interest. If in the fourth year, market interest rates decline to say 7%, the corporation can call-in the preferred stock by paying the call price of $109 plus any accrued interest.

The callable feature allows the corporation to get out of the preferred stock agreement requiring it to pay 9% interest. In turn, the stockholders will be deprived of receiving the 9% interest in a 7% market. The call price has the effect of limiting how high the market value of preferred stock will rise.

Learn more about Stockholders’ Equity.