INVESTMENTS
PREFERRED STOCK
What is Preferred Stock?
Preference Share is considered as suitable for investor with low risk-taking capacity
"Stock" denotes equity or ownership in a company. Preferred stock and ordinary stock are the two categories of equity. Compared to common shareholders, preferred stockholders are entitled to a larger portion of dividends and asset distributions. Each preferred stock's specifics vary depending on the offering.
Reliance Industries Limited is issuing a 7% preferred share at 80,000 Rs par value. As a result, the investor would receive a Rs. 5600 annual dividend. Typically, this preferred share will revolve around its par value behaving much more similar to a bond.
KEY KNOWLEDGE
Features of Preferred Stock
Liquidation:
Dividend Payouts:
Prefence in Dividend:
Non-Voting:
Convertability to Common Stock:
Convertible Preference Share
Non-Convertible Preference Share
Redeemable Preference Share
Non-Redeemable Preference Share
Participating Preference Share
Non-Participating Preference Share
Cumulative Preference Share
Non-Cumulative Preference Share
Market Cap : 27,213Cr
P/E Ratio : 24.0
Industry P/E : 15.0
Debt to Equity : 0.01
EPS : 23.1
Dividend Yield : 0.00%
Book Value : 43.2
Face Value : 1.00
ROE : 90.5%
ROCE :82%
Market Cap : 41,817Cr
P/E Ratio : 81.9
Industry P/E : 41.7
Debt to Equity : 0.12
EPS : 458
Dividend Yield : 0.67%
Book Value : 1372.0
Face Value : 10.00
ROE : 46.4%
ROCE :53.8%
Market Cap : 21,460Cr
P/E Ratio : 27.4
Industry P/E : 38.4
Debt to Equity : 0.17
EPS : 205
Dividend Yield : 0.71%
Book Value : 644
Face Value : 10.00
ROE : 32.3%
ROCE :51.1%
Market Cap : 111,863Cr
P/E Ratio : 50.2
Industry P/E : 56.6
Debt to Equity : 0.98
EPS : 105
Dividend Yield : 1.55%
Book Value : 118
Face Value : 1.00
ROE : 66.6%
ROCE :48.6%
Market Cap : 51,905Cr
P/E Ratio : 66.1
Industry P/E : 38.7
Debt to Equity : 0.11
EPS : 126
Dividend Yield : 0.73%
Book Value : 337
Face Value : 10.00
ROE : 41.1%
ROCE :47.7%
Market Cap : 51,097Cr
P/E Ratio : 47.2
Industry P/E : 39.0
Debt to Equity : 0.03
EPS : 509
Dividend Yield : 0.75%
Book Value : 1463
Face Value : 10.00
ROE : 31.6%
ROCE :41.1%
The shares provide their holders with priority over common stock holders to claim the company’s assets upon liquidation.
Dividend payments to shareholders are made by the shares. The payments may be variable or fixed, determined by reference to a benchmark interest rate like LIBOR.
Preferred shareholders have a priority in dividend payments over the holders of the common stock.
In general, the holders of the shares are not granted the ability to vote. On the other hand, certain preferred shares provide their owners the ability to vote on unusual occasions.
A fixed number of ordinary shares may be obtained by converting preferred shares. While some preferred shares have a conversion date specified, others need board of directors permission before they may be converted.
Types of Preferred Shares:
| Types of Preference Share | Description |
|---|---|
| Convertible | These Shares can be readily converted into Equity Shars |
| Non-Convertible | Though these type of preference share cannot be converted into common stock, they are still prioritised over them |
| Redeemable | Typically, these shares come with a maturity date. On maturity, the company repurchase its shares from investors at a fixed date and ceases their dividends |
| Non-Redeemable | These shares cannot be redeemed in the life-time of the company. Notably they come with the fixed rate of dividend |
| Participating | Besides extending dividends, participating preference shareholders are also entitled to surplus profits of the company |
| Non-Participating | These shares do not entitle to shareholders to any surplus profit but offered them a promised Dividend |
| Cumulative | In the event of loss, the company is liable to pay shareholder's outstanding dividend |
| Non-Cumulative | The Non-Cumulative shareholder's are not entitled to receive dividends in arrears |
Difference Between Preference Share and Equity Share
| Parameter | Preference Share | Equity Share |
|---|---|---|
| Definition | It offers preferential rights in the terms of receving dividends or capital amounts | It represents shareholder's ownership of the Company |
| Dividend | Dividend Payout's rate is fixed | Dividene payout's rate fluctuates with more earnings |
| Bonus Share | Shareholders may receive bonus share against current shareholdings | Shareholders may receive bonus shares against their shareholdings |
| Capital Repayment | Capital Repayment is made before equity share | Capital is Repaid at end |
| Voting Rights | Shareholders do not enjoy voting rights | Shareholders avail voting rights |
| Convertability | Preference Stock can be converted | Equity Stock cannot be converted |
| Arrears of Dividend | Shareholders may receive a cumulated dividends | Shareholders are not entitled to avail cumulative dividends |
| Types | Preference shares and its types includes convertible, non-convertible, cumulative, non-cumulative, participating, and non-participating | There are simply classified as ordinary and common stock of a company |
| Suitability | It is considered as suitable for investor with low risk-taking capacity | It is considered for investor who can take risk |
Top 10 Preference Shares
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