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Boost your dividend yield by investing in shares with a bit of a difference

by , 03 September 2015

You can make money two ways by investing in shares.

Firstly, by buying at one price and selling at a higher price. And secondly, by receiving dividends from the companies you invest in.

So what if there was a way you could boost the yield you receive from dividends that doesn't carry the same amount of risk as investing in ordinary dividend paying shares?

Well you can, by investing in preference shares.

Let's take a closer look…


What are preference shares?


If a company needs to raise capital, it has a few options. It can borrow money from the bank, it can issue bonds or it can issue preference shares.

By investing in preference shares, you’re buying a mixture of equity and debt. It’s a mix of a bond and a share in one.

The dividends preference shares pay-out tend to be at higher yields than ordinary shares.

There are different types of preference shares. One of the most common type is perpetual preference shares. This means it will continue to pay the same dividend rate indefinitely.

There are also callable preference shares. This gives a company the chance to buy back the preference shares at a set date after a certain date in the future, Dr David Eifrig in Daily Wealth explains.


Investing in preference shares


One thing you need to bear in mind is that there is no guarantee you’ll always receive your dividends.

If a company hits financial trouble, it can suspend these preferred dividends, but that means it can’t pay out dividends to its ordinary shareholders either. Preference shareholders rank above ordinary shareholders.

But preference shares’ dividends are safer than ‘normal’ dividends. They can make a great long-term investment.

There are currently over 30 different preference shares listed on the JSE with an average dividend yield of 7.9%.

If you decide to invest in preference shares, you need to apply the same research as when investing in ordinary shares. Don’t jump in blindly.

So there you have it. How to boost your dividend yield by investing in shares with a bit of a difference.

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Boost your dividend yield by investing in shares with a bit of a difference
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