Preference Equity Redemption Cumulative Stock - PERCS

AAA

DEFINITION of 'Preference Equity Redemption Cumulative Stock - PERCS'

A convertible preferred stock with an enhanced dividend that is limited in term and participation. Preference equity redemption cumulative stock (PERCS) shares can be converted for shares of common stock in the underlying company at maturity. If the underlying common shares are trading below the PERCS strike price, they will be exchanged at a rate of 1:1; but if the underlying commons are trading above the PERCS strike price, common shares are exchanged only up to the value of the strike price.


INVESTOPEDIA EXPLAINS 'Preference Equity Redemption Cumulative Stock - PERCS'

PERCS are essentially a covered call option structure, and are popular in an environment of declining yields because of the enhanced dividend. Upside profits are limited in order to produce a higher yield.

For example, if you own 10 PERCS with a strike price of $50, at maturity the following could happen:

-If, at maturity, the underlying asset was trading at $40, you would receive a total of 10 common shares, worth $40 each.

-If, at maturity, the underlying asset had doubled and was trading at $100, you would receive only five shares worth $100 each. The total value of the shares ($500) exchanged equals the strike price of $50 x 10 shares.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Covered Call

    An options strategy whereby an investor holds a long position ...
  3. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  4. Yield

    The income return on an investment. This refers to the interest ...
  5. Common Stock

    A security that represents ownership in a corporation. Holders ...
  6. Strike Price

    The price at which a specific derivative contract can be exercised. ...
RELATED FAQS
  1. What is dilutive stock?

    Dilutive stock is any security that dilutes the ownership percentage of current shareholders - that is, any security that ... Read Full Answer >>
  2. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  3. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  4. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  5. How many votes am I entitled to, if I own ordinary shares of a company?

    If an investor owns one ordinary share of a company, that investor is entitled to one vote on all of that company's major ... Read Full Answer >>
  6. What is the difference between the equity market and the stock market?

    The terms "equity market" and "stock market" are synonymous, both referring to the equity interests in publicly held companies, ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  3. Options & Futures

    Cut Down Option Risk With Covered Calls

    A good place to start with options is writing these contracts against shares you already own.
  4. Options & Futures

    An Alternative Covered Call: Adding A Leg

    Try this approach to covered calls to increase your potential for profit in any market.
  5. Options & Futures

    The Basics Of Covered Calls

    Learn how this simple options contract can work for you, even when your stock isn't.
  6. Options & Futures

    An Alternative Covered Call Options Trading Strategy

    This different approach to the covered-call write offers less risk and greater potential profit.
  7. Options & Futures

    Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.
  8. Options & Futures

    Using LEAPS In A Covered Call Write

    Discover how strategy can help reduce your downside risk.
  9. Economics

    What's a Stock Keeping Unit (SKU)?

    A SKU, or bar code, is a unique identification code that retail and wholesale sellers use to track their inventory of products and services.
  10. Fundamental Analysis

    Calculating Basic Earnings Per Share

    Basics earnings per share measures the amount of net income earned per share of outstanding stock.

You May Also Like

Hot Definitions
  1. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  2. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  3. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  4. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  5. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  6. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!