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Revealed: The one share that's ‘GUARANTEED' to pay you a dividend

by , 20 June 2013

When you buy shares on the stock market, some companies pay a dividend, but there are no guarantees - except in this one case. You see, when you invest in preference shares, you have ‘preference' over ordinary shareholders to receive your dividend and that means your pay-out is guaranteed. Here's the inside story…

Essentially, a preference share is a mixture of debt and equity.

This is because each preference share pays a ‘guaranteed’ annual dividend, explains Gareth Stokes in Fear, Greed and the Stock Market.

The differences between a preference share and an ordinary share

A preference share has most of the characteristics of an ordinary share (except voting rights); but carries a ‘guaranteed’ percentage dividend.

This means the dividend has to be paid out of company profits before ordinary shareholders can receive dividends.

The selection of preference shares available

According to FSP Invest, there are five different types of preference shares available…

#1: The cumulative preference share
If a company can’t pay preference share dividends in a particular financial year, the amount of these ‘unpaid’ dividends will be paid in subsequent years when results allow.

#2: The non-cumulative preference share
If a company is unable to pay preference share dividends in a particular year, the holder of a non-cumulative preference share forfeits the right to this dividend.

#3: The redeemable preference share
A redeemable preference share is issued with the provision that the company will be able to redeem this share at some future date. This means the company will be able to ‘buy’ these shares back, and remove them from circulation.

#4: The convertible preference share
At the discretion of the company, a convertible preference share might be ‘converted’ into an ordinary share.

#5: The participating preference share
The holder of a participating preference share not only receives the fixed dividend entitlement; but receives the ordinary share dividend too!

Bottom line: If you fancy investing in shares providing a ‘guaranteed’ income through dividend payments, preference shares are a great addition to your portfolio.

Revealed: The one share that's ‘GUARANTEED' to pay you a dividend
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