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Preference shares

Preference shares appeal to investors seeking regular stable income as they offer their owners a fixed rate of dividend each year. However, if the firm has insufficient profits the amount paid will be reduced, sometimes to zero, and therefore there is no guarantee that an annual income will be received, unlike with debt capital. Nevertheless, it is rare for a preference dividend to be missed, especially as the dividend on preference shares has to be paid before anything is paid out to ordinary shareholders. In effect, after the preference dividend obligation has been met there may be nothing left for ordinary shareholders.

Preference shares are also attractive because they offer a regular income at a higher rate of return than ...