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Preference Shares

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What are Preference Shares? Is it the same thing as Preferred Stock?

 

Preference Shares, more commonly referred to as Preferred Stock, are issued primarily by Financial Institutions and PLC’s, intended as a way to raise capital without diluting value for their ordinary shareholders. Most preference shares pay investors a Fixed Dividend, as opposed to common stocks which generally do not. Some preference shares have a maturity date whilst others do not. Preferred Stock has characteristics of both bonds and common stock, enhancing its appeal to certain investors.

Mature investors, more risk averse, may find them appealing particularly as they can benefit from Annual Liquidity Redemptions and are Callable (issuer can redeem them at any time). 

Effectively preferred stock are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued. If the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before common stockholders. 

 

 

 

Although they are technically equities, preference shares offer a yield similar to that of a high yield bond, but with typically lower credit risk and volatility. 

Preference shares yields average approximately 6-8% in the current environment. This may make them more attractive to mature, experienced investors, looking to generate stable income from their portfolios over the long term without taking on an abundance of risk.

Some of the most popular types of Preference Shares, are issued by fund managers and/or institutions who use raised funds to purchase particular EMTN’s offering Annual Redemption, under which investor capital stays untouched and unencumbered in a Designated Escrow Account until Maturity. Such programmes use the blocked off funds to raise an independant credit line which is extended to tier 1 traders arbitrage programs, securing high yield returns. In these programmes, capital typically is protected by Government Collateral Guarantees.