ordinary and preference shares

dboswell

can someone explain the difference between these two classes of share?

dzug1

Preference shares tend to have a fixed dividend (although it's not guaranteed to be paid if the company does badly.) The share price is relatuively stable as a result.

The dividend on ordinary shares varies according to the profitabilty of the company - as does the share price.

dboswell

are there difference types of pref shares?

where can you find out about the dividend and share price of pref shares?

opinions4u

dboswell wrote: »

can someone explain the difference between these two classes of share?

http://moneyterms.co.uk/preference-shares/

Preference shares (prefs) are legally shares, but they are very different from ordinary shares. The economic effect of prefs is more like that of bonds. Like convertibles, they are regarded as hybrids of debt and equity:

• Dividends on preference shares have to be paid before dividends on ordinary shares.
• Dividends on ordinary shares may not be paid unless the fixed dividends on preference shares is paid first.
• Dividends are fixed like bond coupons, although there are usually provisions to not pay, or delay payments.
• Preference shareholders have a higher priority if a company is liquidated than ordinary shareholders, although a lower priority than debt holders.
• In the case of cumulative prefs, if the dividend is not paid in full, the unpaid amount is added to the next dividend due.
• Preference dividends are fixed, so they do not participate in increases (or decreases) in profits as ordinary shareholders do.

The effect of these is to make the income stream from preference shares more similar to that from debt than that from ordinary shares. Most importantly, fixed dividends are similar to interest payments. However, they are legally shares and are subject to the same tax treatment.

Aegis

If memory serves, preference shares don't come with voting rights at the general meetings as well as the differences already mentioned.

turbobob

Another type of preference shares are zero dividend preference shares (or simply "zeros"). http://moneyterms.co.uk/zeros/

Thrugelmir

dboswell wrote: »

are there difference types of pref shares?

where can you find out about the dividend and share price of pref shares?

The London stock exchange may be a good start.

http://www.londonstockexchange.com/home/homepage.htm

The name of the preference share will give you its interest yield, as it will have 5%, 6% etc in the title.

Though the actual yield will depend on its current market price.

dboswell

when you buy a pref share, do you get your capital back on sale or does a company redeem pref shares similar to bonds?

purch

You can sell/buy Prefs in the market just as Ordinary Shares (although the market is no where as liquid, and prices are usually harder to find and wider)

Thrugelmir

dboswell wrote: »

when you buy a pref share, do you get your capital back on sale or does a company redeem pref shares similar to bonds?

They are redeemable prefs in the market with a limited life. The prefs will be redeemed in accordance with the terms on which they were originally offered.

The market price of pref shares depends on interest rates.