Understanding Preference Shares
Preference shares are a type of ownership in a company that gives shareholders priority over common shareholders in terms of dividends and assets. They offer a fixed dividend that must be paid before any dividends are paid to common shareholders.
Types of Preference Shares
- Cumulative preference shares
- Non-cumulative preference shares
- Convertible preference shares
- Non-convertible preference shares
Benefits of Preference Shares
Preference shares offer investors a fixed income stream and more security than common shares. They also provide shareholders with voting rights and a claim on assets in the event of liquidation.
Example of Preference Shares
Company XYZ issues 1,000 preference shares at $100 each with an annual dividend of 5%. This means each shareholder will receive $5 per share annually before any dividends are paid to common shareholders.
Case Study: Company A
Company A issues preference shares to raise capital for a new project. The fixed dividend payments help attract investors looking for steady income while also giving the company the funds it needs to expand.
Statistics on Preference Shares
According to a recent study, preference shares have become increasingly popular among investors seeking income and stability in their portfolios. The study found that preference shares outperformed common shares in terms of dividends and capital preservation.
