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Looking for an income from your shares? Consider preference shares…

by , 21 May 2015

When you decide to invest your money, one thing you must consider is the risk you take on.

You can opt for shares, which come with risks. There's the chance a company could go bust or not perform as you expect.

You could consider a ‘safer' option by investing in bonds. But the yields from bonds may underperform the returns from shares.

So is there something that lies in between these two options?

There is, preference shares.

Read on to find out more…


What are preference shares?


Preference shares are a mixture of equity and debt.

They give you some of the characteristics of investing in shares and of investing in bonds.

Preference shares give you the majority of the benefits of investing in shares, apart from voting rights. But due to the debt element, you get a ‘guaranteed’ percentage dividend.

When it comes to a company distributing its profits, preference shareholders are first in line to receive dividends.


The different types of preference shares you can invest in


There are a number of different types of preference shares. You’ll find that preference shares may have one or more of these characteristics.

Participating
As well as receiving the preference share dividend, the holder of the preference share will also receive the ordinary share dividend paid.

Cumulative
If a company can’t pay out its preference share dividend in a particular financial year, the company will pay these out in future financial years when it’s in a position to.

Non-cumulative
If a company can’t pay out its preference share dividend in a particular financial year, the preference shareholder won’t ever receive it.

Redeemable
This means a company can redeem this share at some point in the future. In other words, a company can buy these shares back, removing them from circulation.

Convertible
A company can covert this preference share into an ordinary share at some point in the future.

So there you have it. Consider preference shares if you’re looking for an income from your shares.

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Looking for an income from your shares? Consider preference shares…
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