What are preferred shares?

The concept of preferred shares refers to a rather complex financial investment instrument. They are issued by a company that does not give the investor political rights and that provides variable remuneration conditional on profits.

Preferred shares are halfway between deposit and actions, although they bear more risk than deposits and less than stock investments. Other aspects to take into account of the preferred ones is that they have little liquidity and their duration is perpetual, although the issuer reserves the option of a repayment after five years.

Characteristics of preferred shares

The characteristics of the preferred shares define it as a heterogeneous product, halfway between fixed and variable income, since its deduction is not required since it does not have a specific completion period, as can happen with obligations. Nor can they be classified as shares since they do not have the essential political rights of the same.

  • The term is indefinite, but the issuer has the possibility of canceling them after five years.
  • The final remuneration depends to a large extent on the profits made by the company in charge of issuing the shares.
  • They do not provide political rights to the investor, so they will have neither voice nor vote in the general meeting.
  • In the event of a bankruptcy, investors will have preference over shareholders.

The reason that pushes users to hire preferential is above all their high profitability. These types of products pay well above bank deposits. However, there are two things to keep in mind:

  1. The issuing entity has the possibility to suspend these preferred shares after a period if they are interested.
  2. If the entity does not get benefits or pay dividends that year, the client may not collect the annual coupon.

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