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What are preference shares?

What are preference shares?

Preference shares are sometimes known as ‘convertibles’ or ‘hybrids’ because they have characteristics of both equity and debt.

Like bonds, preference shares provide regular and defined income payments and generally have a fixed maturity date.

However, as with ordinary shares, the income from preference shares comes in the form of dividends, which will either be paid at a fixed or floating rate.

As a preference shareholder, you rank ahead of ordinary shareholders in the queue to be paid dividends or for claims on the company’s assets if it goes out of business.

Preference shares vary in terms of structure and risk, and like with any investment it’s important to fully understand them before investing.

How to buy preference shares

When companies issue preference shares, they publish a prospectus to go with it, outlining all of the important features, risks and other considerations.

You can apply to buy preference shares directly from the company or you can buy them through a broker once they are listed on the ASX.

If you buy them on the stock exchange, you will pay the market price, as you do with shares and bonds, rather than the issue price.

Selling preference shares

Most preference shares, if you hold them until their maturity date, will be converted into ordinary shares, usually at a discount to the market price at the time.

But if you sell preference shares before they mature, you’ll have to sell them on the ASX and accept the market price at that time, which may be above or below their face value.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia. Conyers, Sherine added a comment - Today 9:10 AM