Features of Preference Shares

Preference shares (or preferred stocks) are different from the ordinary shares in that they are given a preference over the rest. These shares are market instrument issued by the companies to the public with the primary aim of raising capital for the company.

Following are the three key features of preference shares:

1) Preference Shareholders are entitled to a fixed rate of dividend and therefore they are also known as fixed income securities. The dividend can be specified as a percentage of the nominal value or as a fixed amount. They will receive a fixed rate of dividend whether the company has made a huge profit or even a loss. This is different from ordinary shares whereby the ordinary dividend will only be paid if the company makes a profit and declares a dividend.

2) Preference shares are comparatively less risky for investors. As such, the investors do not generally entitled to vote in company matters.

3) Preference Shareholders are given preference in paying the dividend in case the company is wound up. In other words, they will receive the money first and their accounts will be settled before that of the ordinary shareholders.

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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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