Collectible Stocks and Bonds from North American Railroads     by Terry Cox

A guidebook and catalog of prices
(I neither buy nor sell stocks and bonds)

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Search the Coxrail database for descriptions of 23,700+ certificates from over 7,400 North American railroad companies.

Stock certificate terminology

Stock certificates versus share certificates. American collectors tend to call them stock certificates while collectors elsewhere seem to prefer the term share certificates.

Visual appearance. Antique stock certificates usually measure about 11 inches wide by eight inches tall. Size varied widely from company to company. Some certificates were as small as today’s paper money while others were as large as supermarket tabloids.

With rare exceptions, stock certificates were printed in horizontal format. That means the text is printed across the wide dimension of the paper.

Recent certificates. Most companies have stopped issuing paper certificates in favor of electronic transactions. Paper stock certificates are almost extinct among operating companies. You can still buy paper certificates some companies, but expect to pay $50 to $75 in addition to the cost of the underlying shares.

Wording. The words stock and share appear on almost all stock certificates. Most certificates are worded similar to:

This is to certify that _________________ is the owner of _______ shares of the capital stock of the NEW YORK CENTRAL RAILROAD COMPANY...

Dividends. Early rail ventures were extremely risky. In order to entice investment, developers offered to share potential profits with investors in proportion to the number of shares investors owned. Equally divided profits are called dividends.

Common and preferred classes. Investors have always had widely variable motives for buying stock in companies. Some investors wanted predictable income in the form of dividends. Others speculated that the value of their shares would rise and they could make profits by re-selling their shares to new investors. To accommodate investor motives (as well as their own), company executives developed two main classes of stock: common and preferred. Taken together, both are generically referred to as capital stock.

Dividends from common stocks. Most investors buy common stock. IF companies offer dividends, stockholders of common shares have direct stakes in their companies’ fortunes. Profits are unpredictable, so dividends are usually unpredictable. Some years, dividends are high. Some years, there are no dividends at all.

Dividends from preferred stock. By contrast, dividends for preferred stocks theoretically remain the same from year to year. When companies pay annual dividends, they give preferred treatment to stockholders of preferred stock. They pay preferred stockholders first, and if there is any money left, they pay dividends to common stockholders.

Since preferred stockholders receive predictable dividends, they do not directly benefit when company profits rise. In that respect, 'preferred' does not necessarily mean 'better.'

Larger companies often issued sub-classes of preferred stock with internal pecking orders in the distribution of both the amounts and priorities of dividends. Typical sub-classes include first preferred, second preferred, and prior preferred.

Capital or corporate stock. The terms capital and corporate stock represent the total issuance of all common and preferred stock. In practice, most companies issued only one kind of stock, so the terms common, corporate, ordinary, and capital stock are usually synonymous.

Ratio of common stock to preferred stock. Generally, only the most secure companies issued preferred stock. Consequently, common stocks are about five times more plentiful than preferred stocks. In general, though, collectors pay about the same for common and preferred stocks.

Preferred stock certificates are known from as early as 1836. They gained popularity after 1870, but their issuance among railroad companies probably peaked during the 1930s.

Convertible stocks. You will occasionally see convertible preferred stock certificates. Provisions allowed owners to convert preferred shares into common shares under certain conditions.

Other classes. Occasionally stockholders’ opinions were at odds with company executives who wanted to retain tight control over how they ran their companies. Around the turn of the century, railroad executives devised ways to decrease the interference of pesky investors. In some companies, boards of directors sub-divided both common and preferred stocks into voting and non-voting classes. Investors generally want to feel like they can influence their companies, so they have always been reluctant to buy non-voting stock shares. Companies try to entice purchase by promising higher dividends or other favorable features. In general, only well-run, profitable companies have successfully sold non-voting classes of stock.

Companies have often been more successful at selling non-voting classes of stock to their employees. Companies often impose extreme limitations on employees selling their corporate shares, so a handful of non-voting certificates survive on the collectibles market.

Assessable and non-assessable stocks. Early stocks were assessable. That meant that if companies ran into financial trouble, they assessed stockholders for additional funds. It was not uncommon for shaky companies to request additional funds from stockholders time and again. Average investors could ill afford the luxury of owning assessable stock.

Companies often enticed investors to buy assessable stock by selling shares for fractions of stated par values. Many, many examples exist of companies which were officially capitalized for $50 per share, but which sold their initial shares for 10% down. At $5 per share, average, middle class citizens could 'invest' in up-and-coming railroads, often buying more shares than they could otherwise have afforded.

Especially when the assessments came.

Needing to avoid financial surprises, investors eventually drifted away from assessable stocks. This meant companies had to discover new ways to keep their stocks attractive as investments. Although essentially all companies ultimately made their certificates non-assessable, that designation still appears on modern certificates.

Voting trust certificates. Occasionally, you will encounter certificates that appear to be ordinary stock certificates, but which are labeled voting trust certificates. Corporations on the verge of failure often needed to make far-reaching decisions very quickly. That was difficult if companies needed to solicit votes from hundreds or thousands of stockholders.

To streamline voting during perilous financial times, companies often formed 'voting trusts' composed of small groups of knowledgeable decision makers. (Usually under court order, of course.) This meant that ordinary shareholders needed to 'trust' those decision makers to make good decisions.

Voting trusts generally printed special certificates and temporarily traded them to stockholders for ordinary shares. If the trusts successfully rescued companies from bankruptcy, they returned ordinary stock certificates to their rightful owners.

Bearer certificates versus registered certificates. Only a tiny number of North American stock certificates were bearer stocks. The remainder were registered shares which meant companies kept records of investors who owned stock.

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(Last updated Jan 12, 2012)

 

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