An alphabet stock refers to a separate class of common stock that is tied to a specific subsidiary of a corporation. More broadly, it refers to shares of common stock that are distinguished in some way from other common stock of the same company.
It is called an alphabet stock because the classification system used to identify each class of common stock uses letters to distinguish it from the parent company’s stock. Alphabet stock may have different voting rights from the parent company’s stock.
Key Highlights
- Alphabet stocks are shares of a publicly traded company that have different share classes, usually denoted as “.A shares” or “.B shares.”
- Often, these shares differ in terms of voting and dividend rights.
- Alphabet stock may be designated to denote ownership in a particular subsidiary of a firm rather than the parent organization.
Understanding Alphabet Stock
Publicly traded companies may issue alphabet stock when purchasing a business unit from another company. This unit becomes a subsidiary of the acquirer, and holders of the alphabet stock are only entitled to the earnings, dividends, and rights of the subsidiary, not the entire acquirer. A similar situation would be the issuance of tracking stock, where a firm issues a subclass of shares on an existing subsidiary.
Alternatively, like with all stock issuance, a firm may issue a new class of common stock to raise capital. However, this new asset class of stock may have limited voting rights, allowing insiders and management to maintain control of the firm.
Alphabet shares may be indicative of a complex capital structure. Companies with complex capital structures and several subsidiaries and divisions may have a combination of several different varieties of common stock classes, with each share class carrying different voting rights and dividend rates.
Special Considerations
When alphabet stock is issued, typical nomenclature is to see a period and letter behind the existing stock symbol, indicating a separate share class. So, for example, if ABC company, whose stock symbol is ABC, issued Class A and B shares, the new ticker for these shares would be ABC.A and ABC.B, respectively.
There is no standard format for alphabet stock in terms of which share class has more voting rights if voting rights differ among them. Typically, Class A shares would have more rights than Class B, and so forth, but it is important to read the details about share classes before investing. Learn more about the issuance of multiple share classes by a firm to make informed decisions.
Related Terms: common stock, parent company, voting rights, subsidiary, capital structure, share class.
