Preferred shares are offered to attract investors who have lower tolerance for risk than do common shareholders. Preferred shareholders are content with a smaller but more predictable share of a corporation’s profits. For instance, preferred shareholders are entitled to dividends before any dividends are distributed to common shareholders. Also, most preferred shares specifically state what amount of dividends their holders can expect each year. For example, owners of $8 preferred shares would be paid $8 per share held each year. These dividends are often paid even if the corporation experiences a net loss in a particular year.
Preferred shares may also have other dividend preferences, depending on what rights have been attached to preferred shares at the date of incorporation. Two additional preferences can be
- the accumulation of undeclared dividends from one year to the next — referred to as cumulative dividends.
- the participation of preferred shares with common shares in dividend distributions beyond the usual preferred dividends — referred to as a participating feature of preferred shares.
- 1107 reads
