What are Preference Shares?
When you scroll through the Evarvest library of stocks, you might notice some names with “Pref” attached at the end. This is short for “Preference” Shares - two big examples are Volkswagen and BMW - have a look!
A Preference Share is like a normal share but with certain differences, which often makes it “behave” more like a bond.
These “certain differences” can vary depending on the company and how it has defined its own preference shares, but typically:
Preference shareholders receive a fixed dividend which the company has committed to pay, come what may (similar to a bond coupon!)
Preference shareholders are usually ahead of regular shareholders if a company goes bankrupt - anything the company is able to pay out will go to preference shareholders before it goes to regular shareholders (again, similar to a bondholder who is also “senior” or first-in-line if a company goes bust!)
Preference shares usually come with no voting rights - they cannot vote on what strategy the company should follow (again - similar to bondholders who don’t get a say in how the company is run)
In the case of Volkswagen, for example, all 3 of the above points apply to their “Pref” shares. Its “Ordinary" shares usually cost more to buy than its “Pref” shares - perhaps reflecting the fact that investors care more about being able to vote on the company’s strategy than they do about the certainty of a dividend or any concerns about looming bankruptcy!
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.
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