For the past two weeks, many of our members from the Truly Rich Club and OFW UsapangPiso groups have been asking whether it is good to invest in preferred shares being offered by Globe Telecoms. And there were a handful of questions as to what are the differences between common shares and preferred shares since the latter sounds relatively alien to them as new investors.
Most new investors are familiar only about earning through investing in common shares as this what they initially learned from seminars or from other online resources. But common stock investors should also know is that investing in preferred shares is another way to earn in the stock market.
What You Need To Know About Preferred Stocks
As previously posted, a preferred stock is a “tisoy” investment vehicle because it can be described as a combination of a debt security and and an equity security. It is part debt security because investors are given fixed and regular income through preferred fixed dividends at certain dates of the year. It is also part equity because investors are given the rights as part owner of the particular company.
While some preferred shareholders are sometimes given voting rights, most preferred stocks in the Philippine market do not provide the same to investors. Also, there are few preferred stocks that can be traded in the PSE although investors may find it hard to sell them when needed as these are not like common shares that you can actively trade.
Another important feature of many preferred shares is that they pay dividends according to declared fixed amount and maturity period just like in bonds. However, even if preferred shares pay out fixed regular dividends, most are still dependent of the decision and approval of a particular companies Board of Directors (BOD’s). Unless the preferred shares are called “cumulative”, the BOD’s have the option to postpone the payment of dividends when the company finds it hard to collect cash or their bottomline becomes red or negative in a specific period.
Cumulative preferred shares are more investor-friendly as these companies will still pay you dividends in the succeeding years (upon BOD’s approval) even if they were not able to pay you in the current year.
Where to find Preferred Shares Investment Offers?
Most of the time, common shareholders are offered by their stockbrokers to invest in preferred shares that are issued by their client companies. If you as a common stock investor have already established your basic financial needs then your extra savings can be used to invest in these preferred shares offered by your broker.
Another venue to check for preferred shares is the Philippine Stock Exchange website itself. From the main page of the PSE.com.ph, you will see a search box where you can look for details of a particular stock.
To look for companies that offer preferred shares, you can type in the search box the word “Preferred”. And the following are some of the results of the search.
1) Ayala Corporation Preferred Shares “A”
2) Ayala Corporation Preferred Shares “B”
3) First Gen Corporation
4) First Philippine Holdings Corporation
5) Globe Telecom Preferred A (GLOPA)
6) Globe Telecom Perpetual Preferred (GLOPP)
7) Leisure and Resorts World Corporation Preferred (LRP)
8) San Miguel Purefoods Company, Inc. Preferred
9) San Miguel Corporation SMC2A, SMC2B, SMC2C
So in addition to your common stocks and other paper assets such as bonds, mutual funds, UITFs, etc., yes, it’s okay to invest in preferred shares as one way of diversifying your investment portfolio.
But of course, be sure that this suits your risk profile and financial goals that you have (and should have) identified from the beginning.
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