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How to invest in preference shares

by , 12 November 2014

If you're looking for an income stream, have you considered investing in preference shares?

Preference shares combine the plus sides of equities and bonds into one financial instrument. As a preference shareholder, you rank higher up the list for dividend payment to ordinary shareholders.

When you buy preference shares, you're effectively lending money to the company the shares are in.

They also tend to have a fixed term, usually between three- and five-years. After this time, the company will buy them back.

So what do you need to consider when investing in preference shares? And what are your options if you want to add them to your portfolio?

Read on to find out…
 

Investing in preference shares

 
If you decide to invest in preference shares, your sole focus should be for dividend income, not capital gain. The price of a preference share is unlikely to rise much.
 
This all comes down to the fact that the majority of preference shares are callable. What this means is they usually have a specific end date. At this time, the company will usually buy them back.
 
If you opt to invest in preference shares, you should concentrate on the dividend payments, not rises in share price.
 

How to invest in preference shares

 
If you want to invest in preference shares, your first port of call should be your stockbroker.
 
You could pick an individual company’s preference shares, or pick a few different ones to add some diversification to your portfolio.
 
There’s also an exchange traded fund (ETF) that focuses on investing in preference shares, PrefTrax. You could look into that as an option too. It pays out accumulated dividends on a quarterly basis.
 
So there you have it, how to invest in preference shares.
 
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How to invest in preference shares
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