What are Preference Shares?

Preference Shares are difference from ordinary shares. Unlike ordinary shares, preference shares do not have voting rights. This means that the share holders are not entitled to participate in the company’s Annual General Meeting (AGM) and vote on matters listed on the agenda.

Preference shares are ranked higher than ordinary shares. In the event of company bankruptcy, preferred stockholders will be paid out in assets before common stockholders, but after debt holders and secured creditors.

Dividend from the preference shares can be fixed or adjustable based on factors stipulated at the points of insurance. Your buying price for preference shares will also affect your yield on them.

Preference shares can be convertible or non-convertible. Convertible preference shares have the flexibility of converting to common shares. This allows you to lock in the dividend income and potentially profit from a rise in the price of the common stock. These are benefits that are not attached to a common stock.

Preference shares can be cumulative or non-cumulative. For cumulative preference shares, it means that if a company missed any dividends within the year, such missed dividends will be added to future dividends during the period of holding the preference shares.