Preference Shares

Preference shares are considered less risky than ordinary shares because:

Preference shares pay a fixed dividend which is decided at the time of the issue of the shares - dividends from ordinary shares may rise and fall from year to year.

Holders of preference shares have an entitlement as their name suggests, to receive their dividends before ordinary shareholders are paid out. So, if there's a limited amount of cash in the kitty, preference holders may be OK while ordinary shareholders get nothing!

If a company were to go out of business, preference shareholders stand higher up the pecking order, behind debenture and loan stock holders but ahead of ordinary shareholders. Preference shareholders will be repaid at par value, the price at which the shares were issued, before ordinary shareholders get a look in!

Preference shareholders often have limited voting rights at the company's annual meeting .

Some companies issue convertible preference shares. As the name suggests, these can be converted into ordinary shares at some future date.

You may invest in preference shares via an ISA.

Last Updated: June 2007 © Moneyextra.com

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