Preferred Shares (Debt or Equity) | Top 6 Types of Shares

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐏𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐒𝐡𝐚𝐫𝐞𝐬?
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Preferred Shares entitles its owners to a fixed dividend irrespective of the Firm's profitability.

𝐓𝐲𝐩𝐞𝐬 𝐨𝐟 𝐏𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐒𝐡𝐚𝐫𝐞𝐬
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#1 - Cumulative Preference Shares
#2 - Non-Cumulative Preference Shares
#3 - Convertible Preference Shares
#4 - Participating Preference Shares
#5 - Prior Preference Shares

𝐏𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐒𝐡𝐚𝐫𝐞𝐬 𝐃𝐢𝐯𝐢𝐝𝐞𝐧𝐝 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐢𝐨𝐧
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Mr. Y owns 25,000, 12% of the preferred shares issued at $40 per share. At NYSE, stock is currently trading at $50.

Then Calculation will be -

The dividend per share of preferred shares = $40 * 10% = $4
Total Preferred Dividends = 12,000 shares * $40 * 5.4% = $25920.

I𝐬 𝐏𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐒𝐡𝐚𝐫𝐞 𝐄𝐪𝐮𝐢𝐭𝐲 𝐨𝐫 𝐃𝐞𝐛𝐭?
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#1 - Equity Features of Preferred Shares

Like equity, it has infinite life, that is, perpetual life. It is shown under the shareholder equity section in the financial statement, not the debt column.
While interest payment on debt are tax deductible, preferred dividends are not tax deductible.

#2 - Debt Features of Preferred Shares

Like debt, preferential shares have a fixed dividend payout as a fixed dividend rate carries stock.
In reality, investing in preferential shares is more like investing in a debt instrument than in equity, as nearly all returns comes out in form of dividends.

To know more about the 𝐏𝐫𝐞𝐟𝐞𝐫𝐫𝐞𝐝 𝐒𝐡𝐚𝐫𝐞𝐬, you can go to 𝐥𝐢𝐧𝐤 𝐩𝐫𝐨𝐯𝐢𝐝𝐞𝐝 𝐡𝐞𝐫𝐞:-

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