What are Preference Shares?

Despite the volatility of shares on the stock market, which basically means investors may see a rise or fall or rather a fluctuation in share price moving from one day to the other, there is a unique option that some may have heard about. The stock with a feature that secures returns with an attached return rate. This type of stock is referred to as preference shares.

Additionally, Preference shares are stock that provides investors with a fixed percentage of returns in the form of dividends. For example Company ABC issues 100,000 Cumulative Redeemable USD Preference shares @ 7.25% Fixed rate to mature 2020. As with common stock, preference share prices may rise or fall but, with preference shares investors unlike with the common stock investors are shown preference when dividends are declared by issuing company as well as in the event that the issuing company fails the preferred stockholders are considered first to receive a share of the issuing company’s assets.

Furthermore, Preference shares offer a unique mix of debt and equity features. These types of stock allow you to trade with investors or rather, buy and sell on the secondary market, as well as earn returns at a fixed or in some cases, at a certain time before maturity at a variable rate, which the issuing company attaches to this form of debt.

All in all, Preference share stock provides a unique option for investors who prefer less reliance on share price going up in future and a bit more on collecting return in the interim before maturity of this debt, thereby providing a short-term and possibly, depending on share price by maturity a long-term return on investment.