PREFERENCE SHARES?

What are preference shares?

Preference shares are explained as shares with a fixed dividend and these have a prior right over all ordinary shares in the distribution of dividends from annual profits; and a prior claim to repayment of capital on a winding-up of the company. Unless such shares are specifically defined as non-cumulative the company is liable for any arrears of preference dividends.

In South Africa there are 6 types of preference shares:

• Cumulative - owner is entitled to a fixed percentage dividend (if not paid in year 1, the dividend will be carried over to the following year)
• Non-cumulative - owner is entitled to participate in a pre-determined fixed dividend (cannot claim arrears and CAN vote on the management of the company)
• Participating - entitled to the dividends and a portion of profits
• Redeemable - Entitled to a fixed percentage dividend but the shares are redeemable by the company at a fixed date in the future
• Non-redeemable - issued by banks and linked to prime lending rates
• Convertible - may be converted into ordinary shares on or after a particular date. Owner is entitled to a fixed percentage dividend (cumulative or non cumulative)

Why purchase preference shares?

The owner is entitled to dividend income on a regular basis although the owner will not have a voting right in the company. None of the risks attributable to ordinary shares will have an effect on preference shares i.e. if a company liquidates the creditors, debenture holders and preference shareholders will be paid first.

Which Preference shares do we recommend?

Give Rock Capital a call, and find out!!!

http://www.investopedia.com/terms/p/preference-shares.asp

http://securities.standardbank.co.za/ost/nsp/BrochureWarepublic/Ost/education_centre/glossary.html