Convertible Preferred Shares are fixed income securities that can be converted into a certain number of company’s common shares after a predetermined tenure. The fact that these Shares are fixed income securities, since they offer a certain level of protection of the money invested and also offer a steady income. The option to convert these securities into company’s common shares also gives an opportunity to the investor to earn profit from the rise in the price of shares.
Trading Convertible Preferred Share
A Convertible Preferred Share can be traded like just like other stock. The trading prices of these shares is influenced by the conversion premium. If the conversion premium is low, the price of the these Shares will be high. Similarly, if the conversion premium is high the price of these shares will be low.
Convertible Preferred Shares vs Common Stock
Convertible Preferred Shares, just like common stock, represent a holding stake in the respective company. This means that the holders of these Shares have a claim on the earnings and assets of the company.
In terms of the return, the Convertible Preferred Shareholders are supposed to be paid before the common shareholders, at the time of bankruptcy or any other similar event. Further, in terms of the dividend paid to the shareholders, these kind of Shares guarantee a payment of fixed dividend on a regular basis. Whereas there is no guarantee of the dividend in case of common shares.
Convertible Preferred Shares are one of the forms of hybrid investment options in the market and these shares are a way of increasing yields at lower risks.
