Characteristics of Preferred Shares

As with bonds, preferred shares may also have other characteristics. These characteristics, if they exist, are set out in the share documents themselves:

Callable or redeemable preferred shares can be repurchased by the issuer of the shares in accordance with the call provision. A call provision may state a set price or a specific time period after or during which the shares may be repurchased. If the stated call price per share is higher than the par value per share of the preferred stock, the difference between the call price and the par value is a call premium.

Convertible preferred shares are preferred shares that give the owner the option of converting the preferred shares into common shares. A preferred shareholder may convert his shares to common stock in order to be able to vote. There may be limits on when the conversion can be done or how many shares can be converted during a time period.

Participating preferred shares can receive additional dividends in years when the company achieves particularly high profits. Usually, the company will have the preferred shares participate in the common dividend after receiving the preferred dividend. The preferred shares may receive a full share of the profits distributed as if they were common shares, or they may receive only part of the distribution to the common shares.

Voting rights means that some preferred shares also have the right to vote. Commonly, preferred shares with cumulative dividends automatically receive a vote if the annual dividend is not paid.