Preferred Dividends

Podcast Duration: 04:57

Hello all, welcome to another podcast by Angel One.

Aaj hum dividends discuss karne waale hain. In particular, a type of dividend known as Preferred dividends.

Chaliye, let's dive into it.

Jo dividends ek company ke preferred shares par pay hote hain, use preferred dividend ya preferred stock dividends kaha jaata hai. Agar issuing company kisi bhi reason se apne saare dividends nahi pay kar paati, preferred dividends ke claims ko common shares ke dividends ke claims se zyaada preference milti hai.

Preferred stocks ka ye perk hota hai ki, in general, ek company ke preferred stocks usi company ke common equity stocks se higher dividends dete hain.

Preferred dividends ek preferred stock ke face value aur dividend rate ke basis par issue kiye jaate hain. Jaise ki 10% of face value of stock, every quarter.

Stock ki face value hoti hai uski value in the corporate charter or book. Isse PAR value bhi kaha jaata hai. Ye price, market price se kaafi differ kar sakti hai. If a stock is in high demand, usually uski market value uske PAR value se zyada hoti hai, and vice versa.

Kyunki preferred dividends ka rate iss PAR value par based hota hai, ye dividends high inflation ke time par kam pad sakte hain. Ye fixed rate, usually inflation adjusted nahi hota.

Jab bhi ek preferred stock issue hota hai, usme prospectus ka PAR value aur equity ka dividend rate included hota hai. Basically, PAR value multiplied by dividend rate becomes annual preferred dividend. Par yeh jo total annual dividend hai, it can be paid in installments. For example, many companies issue dividends quarterly. Ye installments ka amount is determined by simple division - total amount divided by number of installments.

Toh yeh preferred stocks common stocks se kaise alag hote hain? Let’s see.

Jab investors ek company ke preferred stocks khareedte hain, unko kuch special features bhi milte hain. Ye features common stocks ke features se kaafi different hote hai. Chaliye, inke kuch key differences discuss kar lete hain.

Jin shareholders ke paas preferred stocks hote hain, unhe dividends payout ke time par preference milti hai. In exchange, jab company surplus dividends distribute karti hain, preferred stocks ke shareholders ko woh extra dividends nahi milte.

Equity shares ke comparison me, preferred shares usually non-participating hote hain. Iska matlab ye hai ki, inn shares ke saath company ki ownership rights ya voting rights nahi milti.

Lekin kuchh preferred shares ke saath ye participation right bhi milta hai aur shareholders company ke decision making process me hissa bhi le sakte hain. Inn shares ke dividends sirf fixed rate of interest tak limited nahi hain.

Jo preferred stocks callable hote hain, unke dividends zyaada hote hain. Callable preferred stocks woh hote hain jinhe issuing company, ek date ke baad ek pre-set price par call in akr sakti hai. Yani ki wapas kharid sakti hai. Aise mein investors might compromise long term security but get preferential payment of dividends.

Agar apke preferred stocks unke call price par retire ho gaye, future me jo preferred dividends applicable hote woh in stocks ke repurchase me included honge.

Callable preferred stocks ke comparison me convertible preferred stocks ke dividends kam hote hain. Convertible preferred shares ko investors kabhi bhi common shares me convert kar sakte hain.

Ek example dekh lete hain to understand how preferred dividends work.

Let’s consider the case of a very successful e-commerce company that was planning to expand. Is expansion ke costs around rupees 1 crore estimate kiye gaye. To raise this, the company needed to attract investors. Ye karne ke liye do options the ya toh fresh preferred stocks issue kiye jaye, that give investors preferred dividends ya fir aur traditional stocks issue kiye jaye.

Traditional stock ka drawback hai ki ye company ki ownership dilute karti hain. The cost of capital because of such ownership becomes very high. Agar woh aur preferred stock issue karte hain, cost of capital kam rehta hai aur ownership bhi share nahi hoti. Preferred stocks are also appealing to investors.

Company ke board ne preferred stock issue karne ka decision liya. With fixed annual preferred dividends, earnings ka part jo dividends pay karne me use hote woh save honge. Company ko ye confidence raha ki ye fixed dividend amount to be paid can be managed well after the expansion generates more revenue.

So basically, preferred dividends milte hain preferred stockholders ko. In shareholders ko dividend payments me priority milti hai, but ownership ya participation nahin.

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As usual, happy investing.