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; often this finds favour with experienced investors in times of market uncertainty, turbulent financial markets and recession downturns. In similar fashion, some preference shares have a maturity date whilst others do not. The most popular preference shares are officially ISIN Listed and registered. Preferred Stock effectively shares 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 technically defined as 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% per year in the current environment. This may make them more experienced investors, looking to generate stable income from their portfolios over the long term without taking on an abundance of risk.
Preference Shares programmes vary depending on the financial institution issuing them. Increasingly popular types of Preference Stock, features annual liquidity redemption, and are issued by regulated fund managers and/or institutions who utilise capital into Arbitrage Trading Programmes under which investor capital remains untouched and unencumbered in Escrow or Blocked MT799 Account with a major Bank until Maturity.
The protected blocked funds are a simply means to provide proof of funds in order to raise an independent leveraged credit line which is extended to tier 1 arbitrage trade programmes, securing high yield returns. In these programmes, capital remains untouched and can be additionally protected by bank guarantees.
With these type of preference shares, FCA Regulated Investment Managers are typically appointed as the official Investment Advisor to advise on fund Strategy.