Nowadays, investing in stocks is no longer a strange thing for everyone. Many new investors are familiar with online stock investment. That is, trading and buying and selling stocks through online platforms. And most of them are derivatives or common stock. For traditional investors, they prefer to hold preferred stocks. So What is preferred stock?? What are the features and benefits of preferred stock, and how to buy it? Let's see the following article!
What is preferred stock?
What is preferred stock? In English preferred stock is called Preferred Stock. Preference shares are similar to common shares, the owner is the preferred shareholder of the company.
Depending on the specific type of preferred stock, shareholders will have different benefits. For example, the right to enjoy high profits, the right to vote, the right to have priority in debt payment in case the company goes bankrupt, etc.
Preferred stock market
Preference shares on the market today have many types and each class will have different rights and obligations. They are specified by law in Clause 2 – Article 114 of the Enterprise Law 2020. Including the following types:
– Shares, shares with dividend preference;
– Stocks, redeemable preferred shares;
– Shares, voting preference shares;
- Other types of shares and preferred shares.
What is preferred stock? What types of preferred stock are there?
Dividend preference shares
Dividend preference shares: When owning this stock, shareholders will receive a higher annual dividend than common shareholders. Besides, the dividend will be fixed and not dependent on the business situation of the company.
For example, the company has bad results due to the pandemic, the company is not profitable to pay dividends to common shareholders. The company will have to pay dividends to preferred shareholders at the rate of profit as originally agreed.
However, as a dividend preference shareholder, you will not have the right to vote nor the right to attend the general meeting of shareholders. This means that you are also not allowed to propose a company manager, supervisory board and board of directors.
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Voting preference shares
Voting preference shares: When owning this stock, shareholders will have a higher voting rate than other types of shares. Shareholders have the right to vote, the right to propose a company administrator, etc. in proportion to the number of shares they hold. However, shareholders owning voting preference shares will not be allowed to transfer shares to other people.
However, not everyone can hold voting preference shares. This stock can only be held by the founding shareholders of the company. After 3 years, from the date of incorporation, these shares will be converted into common shares.
Refundable preferred shares
Redeemable preference shares: When owning these shares, shareholders will be given priority to return dividends first. At the same time, shareholders are not allowed to participate in the board of directors, have no right to vote and propose members to manage the company.
Advantages and disadvantages of preferred shares
Advantages of preferred shares
– For investors: Preference shareholders will receive higher dividends than common shareholders. In addition, the profit level is also fixed and does not depend on business results. This will create a more stable passive income for shareholders. Besides, in case the company goes bankrupt. Preference shareholders will also be given priority to pay back first, compared to other types of shares. On the other hand, if you hold voting preference shares, you will have more say in the company. At the same time, you also have the right to make the decision to elect the company's executive board.
– For joint stock companies: Thanks to preferred stock, businesses can attract homes investment capital contribution to the enterprise; create a cash flow to help the business grow its business. Besides, the company can buy back preferred shares when necessary.
Risks of preferred stock
– For investors: When owning dividend preference shares, investors are not allowed to vote or decide on the management of the company. As for shareholders owning voting preference shares, they are not allowed to sell out. Investors have to wait 3 years from the date of establishment of the company for voting preference shares to become common shares. From there, it can be sold or exchanged.
– For joint-stock companies: Issuing too many preferred shares will increase the cost of paying interest to shareholders. Moreover, the issuance is also quite difficult and businesses need to calculate with a reasonable number of issues.
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What is the difference between common stock and preferred stock?
Preference shares and common shares have similarities and differences. Below is an analysis of the similarities and differences between common stock and preferred stock. Please continue to watch.
Alike
Both preferred stock and common stock are an equity security. This is a tool to help businesses raise capital for business activities. The ownership period is usually in the medium and long term (over 1 year). All are regulated by the State Securities Commission and the Ministry of Finance.
Difference
About profit:
Preference shares: have the same characteristics as common stocks and bonds. The income received is stable and does not depend on the company's business results. Priority to be paid first by the company.
– Common shares: Receive income depending on business results. Paid by the company after paying preferred shareholders first.
About the quantity:
– Preferred shares: account for a small amount.
– Common shares: account for a very large number.
The right to vote and participate in the management of the company when owning:
– Preference shares: Shareholders do not have the right to vote on dividend preference shares and redeemable shares. Shareholders have voting priority when owning voting preference shares.
– Common shares: Can manage the company and have the right to vote when participating in the general meeting of shareholders.
Handling when the company goes bankrupt:
– Preference shares: priority is given to debt payment before common shareholders and after bonds.
– Common shares: only receive back the final asset value after the company has paid off its debt and paid to preferred shareholders.
How to calculate a stock's dividend?
Dividend payout ratio is divided over the total net income of the company to all shareholders. The rest of the money will be used to repay the loan and reinvest.
So, what is the annual dividend payout ratio? Let's see the calculation formula!
Formula for calculating dividend payout ratio:
Dividend payout ratio = Dividend/Net income
. Dividend: annual dividend per share
. Net income: Earnings per share
Another formula: Dividend payout ratio = 1 – Retained profit ratio
What is preferred stock? How to buy preferred shares?
Preference shares are not for everyone, only a few shareholders are eligible to buy preferred shares. Waiting time for order approval is from 30-45 days. However, with many benefits brought, many investors also register the right to own. To buy preferred shares you must follow these steps:
– Step 1: First, you need to create an account to access and register for the right to buy shares.
– Step 2: Perform the operation to register the right to buy. In the event list, select the corresponding line and then click on the implementation box.
– Step 3: Enter the number of shares to buy, look at the corresponding amount you can calculate according to your budget. Next press the confirm button. Then move on to the next step.
– Step 4: After registering, the system will automatically confirm and send a transaction notification to your account. Select OK to be sent the OTP code to the phone message.
– Step 5: Next, you enter the OTP code to confirm the transaction.
– Step 6: If all operations are valid, the system will notify successful.
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Epilogue
Above are the shares on the topic of what is preferred stock? Features of benefits and risks that investors need to keep in mind. Hope the information of tintucbatdongsanviet is useful to you. From there, you can choose for yourself the most suitable investment channel. Goodbye and see you in the next post.
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