investing in preference shares

jimjames

Malthusian wrote: »

You asked if there are any investments that pay a decent return with no risk. The answer is no as no risk = no return and there is no such thing as no risk anyway.

Although regular savers at 5% are about as close as you're likely to get even with inflation

Malthusian wrote: »

I Of course you can. At today's price you can lose £321.
I wonder if B&W do go bust tomorrow and you lose your money, whether it will still be free money that you don't care about or whether it will be another example of how the system screws over the little guy.

Totally agree. I had B&W shares, B&B, Halifax and A&L shares. All of them were sold and reinvested in balanced portfolio. When I see posts here from people saying they lost all the money from their shares, there was a choice to sell or to hold and holding only 1 companies shares was the risky option.

coxwell

1. ombudsman found in favour, ifa closed down and walked away paying compensation of exactly nothing after 3 years of correspondence, loads of stress and aggro. Great system!!!!
2. if something is given to you you pay nothing for it, if you pay nothing and get nothing back you have lost nothing, err!!!!
3. what is your problem? I only asked for some advice so that I could investigate further, I'm sorry I have upset you, get yourself a drink, perhaps I could buy it for you with my premium bond win!

Malthusian

coxwell wrote: »

1. ombudsman found in favour, ifa closed down and walked away paying compensation of exactly nothing after 3 years of correspondence, loads of stress and aggro. Great system!!!!

If he liquidated the business then presumably you claimed your redress from the Financial Services Compensation Scheme?

coxwell

THEY DID NOT WANT TO KNOW!
Hence my comments, I have really been let down by the system, it is not what it seems!

Majestic12

I can see preference shares could be useful in start up companies or companies who may have just gone IPO. Especially if they are cumulative. But still, they have to be paid out of profits. No profits, no dividends.

Otherwise for established companies, it would be just better to invest in ordinary shares, especially if they are voting and preference shares non-voting? Either way they are still the riskiest investments then say, investing in bonds and loan notes.

bowlhead99

Majestic12 wrote: »

Otherwise for established companies, it would be just better to invest in ordinary shares, especially if they are voting and preference shares non-voting? Either way they are still the riskiest investments then say, investing in bonds and loan notes.

Riskier than bonds and loan notes because creditors and other debts of the company get paid out before any shareholders. Less risky than ordinary equity shares, because they get paid their dividend and capital in preference to the ordinary equity shareholders' dividends and capital.

For example in a bad year if the cashflow of the company only supports paying out £100k in cash dividends and the coupon on the preference shares is £99k, the pref holders get paid out and the ordinary shareholders' dividends will just be suspended because it's not worth messing around trying to distribute £1k amongst hundreds of ordinary shareholders.

If the company goes into liquidation with £10 million of assets but £7.5m of creditors and loan stock, its capital structure includes £2m nominal of preference shares and £10m nominal of ordinary shares, the creditors will get paid and the loans will get repaid in full and the preference shareholders will get paid out in full and the equity shareholders will have to fight amongst themselves for the remaining £0.5m and will walk away with just 5p in the pound.

Majestic12

bowlhead99 wrote: »

Riskier than bonds and loan notes because creditors and other debts of the company get paid out before any shareholders. Less risky than ordinary equity shares, because they get paid their dividend and capital in preference to the ordinary equity shareholders' dividends and capital.

For example in a bad year if the cashflow of the company only supports paying out £100k in cash dividends and the coupon on the preference shares is £99k, the pref holders get paid out and the ordinary shareholders' dividends will just be suspended because it's not worth messing around trying to distribute £1k amongst hundreds of ordinary shareholders.

If the company goes into liquidation with £10 million of assets but £7.5m of creditors and loan stock, its capital structure includes £2m nominal of preference shares and £10m nominal of ordinary shares, the creditors will get paid and the loans will get repaid in full and the preference shareholders will get paid out in full and the equity shareholders will have to fight amongst themselves for the remaining £0.5m and will walk away with just 5p in the pound.

Exactly! I think the preference shares (because of the priority over ordinary shares) is useful for investing in companies with uneven earnings. E.g. make profit one year, loss the next, especially if they are cumulative and carry over.

bowlhead99

Majestic12 wrote: »

Exactly!

If you think my post explaining that prefs are riskier than pure debt investments but less risky than ordinaries was 'exactly' right, not sure why you would say "Otherwise for established companies, it would be just better to invest in ordinary shares, especially if they are voting and preference shares non-voting?"

It would not be 'just better' to invest in ordinary shares of established companes if you did not want to take the obviously higher risk of ordinary share ownership. Ordinaries have higher return potential because equity ownership gives you more potential upside and more potential downside. Many people don't want to risk all their money into getting that extra potential upside, even for established companies.