Difference between 12% and 9% redeemable preference shares
This query is : Resolved
24 January 2017
What is the difference between 12% Redeemable preference shares and 9% Redeemable preference shares. What is the meaning of that percentage before redeemable preference shares?
25 January 2017
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21 July 2024
The percentage mentioned before "Redeemable Preference Shares" indicates the rate of dividend that the shareholders holding those shares are entitled to receive. Here’s the difference between 12% and 9% Redeemable Preference Shares:
### 12% Redeemable Preference Shares:
- **Dividend Rate**: Shareholders holding 12% Redeemable Preference Shares are entitled to receive a dividend at the rate of 12% per annum on the face value of the shares. This means that for every Rs. 100 face value of the preference shares, the shareholder will receive Rs. 12 as dividend annually before any dividend is paid to equity shareholders.
- **Higher Yield**: These shares offer a higher annual dividend yield compared to 9% preference shares, which can be attractive to investors seeking higher fixed income from their investment.
### 9% Redeemable Preference Shares:
- **Dividend Rate**: Shareholders holding 9% Redeemable Preference Shares are entitled to receive a dividend at the rate of 9% per annum on the face value of the shares. Using the same example as above, for every Rs. 100 face value of the shares, the shareholder will receive Rs. 9 as dividend annually.
- **Lower Yield**: These shares offer a lower annual dividend yield compared to 12% preference shares. Investors may choose these shares for a more conservative income-generating investment compared to higher-yielding preference shares.
### Key Points:
- **Nature of Dividend**: The percentage rate indicates the fixed dividend rate that the company commits to paying to preference shareholders before any dividend is paid to equity shareholders.
- **Redeemable Nature**: Both 12% and 9% Redeemable Preference Shares are redeemable, meaning the company has the option to buy back these shares at a specified future date or under certain conditions.
### Conclusion:
The difference between 12% and 9% Redeemable Preference Shares lies primarily in the annual dividend rate they offer to shareholders. The choice between these types of shares often depends on the company's dividend policy, investor preferences for income yield, and overall financial strategy.
### 12% Redeemable Preference Shares:
- **Dividend Rate**: Shareholders holding 12% Redeemable Preference Shares are entitled to receive a dividend at the rate of 12% per annum on the face value of the shares. This means that for every Rs. 100 face value of the preference shares, the shareholder will receive Rs. 12 as dividend annually before any dividend is paid to equity shareholders.
- **Higher Yield**: These shares offer a higher annual dividend yield compared to 9% preference shares, which can be attractive to investors seeking higher fixed income from their investment.
### 9% Redeemable Preference Shares:
- **Dividend Rate**: Shareholders holding 9% Redeemable Preference Shares are entitled to receive a dividend at the rate of 9% per annum on the face value of the shares. Using the same example as above, for every Rs. 100 face value of the shares, the shareholder will receive Rs. 9 as dividend annually.
- **Lower Yield**: These shares offer a lower annual dividend yield compared to 12% preference shares. Investors may choose these shares for a more conservative income-generating investment compared to higher-yielding preference shares.
### Key Points:
- **Nature of Dividend**: The percentage rate indicates the fixed dividend rate that the company commits to paying to preference shareholders before any dividend is paid to equity shareholders.
- **Redeemable Nature**: Both 12% and 9% Redeemable Preference Shares are redeemable, meaning the company has the option to buy back these shares at a specified future date or under certain conditions.
### Conclusion:
The difference between 12% and 9% Redeemable Preference Shares lies primarily in the annual dividend rate they offer to shareholders. The choice between these types of shares often depends on the company's dividend policy, investor preferences for income yield, and overall financial strategy.
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