DEFINITION of 'Watered Stock'

Stock that is issued with a value much greater than the value of the issuing company's assets. Watered stock can be caused by excessive stock dividends, overvalued assets and/or large operating losses.

BREAKING DOWN 'Watered Stock'

Assets can be overvalued for several reasons, including inflated accounting values or excessive issue of stock (through a dividend or employee stock-option program). This term is thought to originate from ranchers who would feed their cattle large amounts of water before market day to make them heavier, fetching a price higher than their worth.

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