Question

What are the advantages of preference shares from the point of the investors?

Answer 1

1. Preference shareholders receive a more stable and regular dividend than equity shareholders, as they are paid before equity dividends. The dividend rate is fixed.
2. The risk for preference shareholders is lower, as they have a priority over equity shareholders when the company is wound up.
3. They can expect to recover their investment within a specific time frame, but preference shares cannot be issued for more than 20 years.
4. For cumulative preference shares, any unpaid dividends accumulate and must be paid in the future.