Preference Shares are Shares that have some of the characteristics of debt and equity. They behave like Shares in that their prices can climb over time as they are traded, but are similar to debt because they pay investors fixed returns in the form of dividends.
Who should use this?
Preference Shares are used by professional and private investors who prefer a medium risk and return.
- Are second in line to receive capital repayments after debt holders if the company is wound up.
- Receive a higher level of income than debt holders because of the higher risk involved, because Preference shareholders are not guaranteed dividend payments in the way that debt holders are guaranteed interest payments.
- Have a better chance of receiving dividends than Ordinary shareholders, although Preference shareholders are not guaranteed dividend payments.
- Preference shareholders are guaranteed specified percentage dividends if the company makes a profit.
- Preference shareholders do not have right to vote at annual general meetings.
- Preference shares carry a higher risk than debt instruments, but lower risk than Ordinary Shares.
How to get Preference Shares
To buy Preference Shares, individuals will need to open a brokerage account with a JSE Equity Member Certain Exchange Traded Funds (ETFs) also give exposure to Preference Shares.