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Preferred Shares: what are preferred shares or classes of shares?

Hello: everyone welcome to the WallStreetmojo channel. Please watch the video till the end. If you are new to this channel, you can subscribe by clicking the bell icon Friends. I welcome you to the tutorial on preferences and the question of debt or equity. Let’s get into the nitty-gritty of what we are talking about here At the very first and initial state at the edge at the inception, what are preferred shares or classes of shares?

One is known as common shares, which we call equity shares, and the other is called preferential or preferred share capital. The common or equity shareholder represents ownership in the company. The holder of the company’s shares may or may not be entitled to a dividend depending on the profitability of the company. On the other hand, if we talk about preference shareholders, they are entitled to a fixed dividend. This is very important.

They are entitled to a fixed dividend, irrespective of the profitability of the company, So dividends received on preferred stock are known as preferred dividends. In this tutorial, we are going to discuss a number of things regarding preferential capital and preferred shares. Let’s get into the details. First, what are preferences or preferred shares? It can be either of the two.

A company issues, as I told you, two types, equity, and preferred Equity – ownership in the company and preferred shareholders are entitled to a dividend. They are known as preferred because in case a company is unable to pay all the dividends it can claim, preferred dividends take precedence over the claim to the dividends paid on equity shareholders. There is a company called Diana Shipping. Let me show you some details regarding the same Now, there’s this company called Diana Shipping Inc.

We went through the company’s details online and on their website, and we found details like dividend amount per share from all the dates from 2014 to 2016. All the dividends that have been paid First, let’s understand the calculation of preferred dividends with the help of an illustration, Let me get to Excel to make you understand. Let’s say, Mr. X, owns 20,000 shares and 10 % of the preferred shares were issued at a par value of $ 50. The current market price ( CMP ), is $ 60, but there is a difference To calculate the preference dividend multiply the par value by the dividend. Percentage stated in the prospectus or share certificate, The dividend yield ratio is the dividend per share, divided by the current market price multiplied by 100.

There are six types of preferred dividends, including cumulative and non-cumulative. Convertible participating, perpetual, and prior preference shares Preferred shares are a hybrid security with features of both debt and equity. The cost of preferred shares is higher than debt, but lower than equity, Financial and insurance companies are the biggest issuers of preferred shares. Preferred shares have become popular due to their ability to raise funds and combine features of both debt and equity.