Preferred shares
What are preference shares?
Preferred shares (preferred stocks, preference shares) – особый вид акций с фиксированной суммой дивидендов по ним. В финансовой сфере для привилегированных акций также используется жаргонное слово «префы».
What is the difference between preferred stock and common stock?
The advantage of preferred stock is the right to:
- Receive a fixed income, either as a percentage of the stock price or a certain amount of money paid regardless of corporate performance;
- for priority dividends;
- on priority participation (after satisfaction of creditors - banks of bondholders) in distribution of property of the corporation at its liquidation;
- for additional payment, if the amount of dividends paid for the ordinary shares, exceeds the amount of dividends on preferred shares.
Holders of preferred shares often do not have the right to vote at shareholder meetings, but in some cases holders of such shares may still vote.
What types of preferred stock are there?
There are the following types of preferred stock:
- cumulativewhich have the right to accumulate unpaid dividends, accrue them and pay them in the next following missed period;
- non-cumulativefor which the unpaid dividends are not added to the dividends of the following years;
- convertedwhich are exchanged for a specified number of common stocks or bonds of that corporation;
- unconvertedwho can't change their status;
- participatorywhich entitle the holders of these shares to receive additional dividends over and above those provided for if the dividends on the ordinary shares are greater.
Do preferred stocks have disadvantages?
There are disadvantages to owning preferred stock:
- The issuing company can demand the shares back from the shareholder without explanation, while fully compensating for damages with interest;
- Often preferred stock does not carry voting rights.
Where to buy preferred stock?
Most large companies, in principle, are interested in selling their assets to as many buyers as possible. And that is why there are no problems now with, for example, buying preferred shares of Sberbank or Gazprom from numerous brokers.
As an option, it is possible to use the public resources of one of the stock exchanges where the relevant securities of large firms are traded in free circulation - for example, MICEX. For example, preferred shares of Sberbank have a guaranteed yield (about 4-5%) and a relatively low cost - about 50 rubles per unit.