Companies issue securities to raise capital. It can be debt receipts - bonds with coupon income and shares. Dividends are part of the net profit due on one security.
Asset definition
People far from the stock market buy securities as a means of additional passive income and investment in the future.
Ordinary and preference shares are a way to engage holders of non-obligation funds in the investment of an enterprise.
The text of the article will contain expressions - elite shares, profitable shares, and elite shares. These phrases indicate one subject - preferred shares.
In addition, the article will contain abbreviations:
- OA - ordinary shares.
- PA - preferred shares.
- MICEX - Moscow Interbank Currency Exchange.
- AAA, CCC - rating indicator of a company according to the classification of rating agencies.
A small part of people acquire shares with a speculative purpose. Hope for a solid income when participating in daily trading is confirmed by 5% of traders.
Faced with the terms “ordinary” and “preferred” stock, a person has to assess the risk of owning each type of securities.
Examples of issuers
Preferred shares of Sberbank and Surgutneftegaz bring dividends to co-owners regularly. The holder’s income is small. But arithmetic shows that, given the growth in value, the owner of the security does not remain on the loser.
Consider the example of Surgutneftegas. Stocks have been listed on the stock exchange since 2002. All year it was possible to buy an asset at 6.40 rubles. For a sixteen-year period dividends per share in the amount of 28.58 rubles were paid. In January 2018, the average cost was 31.5. The calculations give the result:
- D = 31.5 + 28.58 - 6.4 = 53.68.
Over the course of three five-year periods, a prudent investor has increased its own funds by 8.3 times.
On the stock exchange, CIS papers are traded in lots of 100 pieces. Having bought 1 lot in 2002 for 640 rubles, a person can now sell the asset and receive an income of 5368 rubles.
Purchasing power was then expressed in the following figures: 58 liters of brand 95 gasoline were available for 640 rubles. Now, 2.62 tanks of a Mercedes-universal car can be refueled with 5368 rubles.
Cost estimate
The cost of preferred shares is no secret. Information on the current price of one share, on the size of the minimum purchase, on commission fees can be obtained from several sources:
- from the websites of issuers that placed shares to attract investors;
- from stock exchange newsletter;
- Information pages of investment and management companies.
Three types of stock value are used:
- Nominal rating. Declared in the prospectus per share. If assets are suddenly issued on paper, then the denomination in rubles is printed on the form. There is no price difference between ordinary and preferred securities upon announcement.
- Market price. It develops in the life cycle of paper in the stock market. This is the amount that a person is willing to invest in an enterprise through equity participation. Most often, ordinary shares exceed preferred assets in value. This difference is called a discount. For example, a trading day on the Moscow Exchange on January 22 ended for Sberbank with a closing price of OA at 243.99 rubles, and PA fixed at a closing price of 202.50. Discount - 41.49 rubles.
- Book value. Important for legal entities. If the shares are traded on the stock exchange, then in addition to the share capital, the share of PA in the capital is taken into account. The task of balance sheet accounting is for accountants, professionals.
How to get
Preferred shares of Russian companies are sold on the Moscow Exchange. A person with free capital in search of income is recommended to contact the investment company or the brokerage department of the bank.
Before visiting the office of an exchange assistant, it is useful:
- View on the MICEX website a complete list of issued securities;
- get acquainted with the history and prospects of traded enterprises;
- to study the dividend policy of selected companies in terms of OA and PA.
In January 2018, the MICEX listed four dozen issuers with preferred shares on the quotation list.
All issuers in the stock market are divided into echelons. The highest is the first echelon. This includes large, sustainable companies in high demand. Such companies are called "blue chips" in the stock market press. As of January 2018, the list of the first echelon includes 25 securities issued by twenty-two “blue chips”. Three “blue chips” from the first echelon are well bought and sold, these are: Sberbank, Transneft, Surgutneftegaz.
By purchasing shares on the exchange, a person remains free to choose what to do with the property further:
- keep with the prospect of enrichment through dividends and market price increases;
- sell at an opportunity;
- engage in active speculative trading.
The assets of the “blue chip” list are volatile and marginal for short periods of time. Experienced traders earn on stock transactions.
Who rules, the owner
The rights of the owner of a preferred share differ from the rights of holders of ordinary shares by the prohibition of voting at meetings of shareholders. As long as the owner of the preferred shares receives dividends, he does not vote on his shares. Except when a resolution is adopted on the termination of the company. Admission to voting is also made if shareholders discuss issues of reducing the rights of owners of PA.
As soon as the payment of preferred assets ceases, the owner of the expensive assets can approve or protest on the entire agenda.
The company's standards indicate the percentage and cash volume of dividends on PA. Or the order of accrual is determined. If the digital indicator is not fixed, then holders of PA receive dividends on a par with the owners of OA.
The rights and obligations of shareholders - holders of PAs are detailed in the charters of issuers. Therefore, it is useful for a potential acquirer of assets to study the constituent documents. You must know the order of entry and the procedure for exiting the asset.
In the event of bankruptcy of the company on the list of creditors, owners of preferred shares are ahead of the owners of ordinary shares and have a chance of a partial return on invested funds.
Investor Bait
You can purchase or sell securities on the stock market. The exchange rate is a parameter that changes the market price to face value in percentage terms. For example, the nominal value of Sberbank’s PA is 3 rubles. The closing price on January 22, 2017 is 202.5 rubles. Then the preferred stock price is calculated as follows:
- K = 202.5: 3 x 100% = 6750%.
The market price depends on a dozen factors, including demand for paper and offers for sale.
Dividends paid affect share price behavior. Before the cutoff for inclusion in the registry, growth occurs; after the registry is closed, the cost is reduced by a minimum of dividends.
Investing in a bank deposit is considered a less risky asset than owning shares with the prospect of receiving dividends.
In order not to miss, you need to consider the results of the activities of the issuer chosen for investment, to assess the risks and profitability. To solve this problem, there is an army of analysts in banks, management and investment companies.
Attentive readers pay attention to the news of rating agencies. The phrases “raised the rating to AAA” or “lowered the rating to CCC” indirectly affect the stock price.
Price progress analysis
Preferred stock quotes are like diagnosing a car: it’s going or it’s time to repair it. World-famous companies, banks and stock quotation commissions study the market behavior of a security, prices at the opening of the session and at the close of daily stock trading; peaks reached and fall depth during the working day.
Sellers declare their readiness to sell the asset at an affordable price. Buyers submit bids for the purchase at the desired price. So in the end, the market price is born.
Take Sberbank as an example. When Gref announced the company’s intentions in 2020 to receive one trillion rubles in income, in the second half of the year the intensive growth of preferred shares began. According to the issuer's website, the price of an asset has risen in price by 51.4% over 6 months, while over the full year of 2017 the growth was 60.1%.
Profit sharing
Units of Russian companies can be considered as a source of additional income not only from the list of “blue chips”, but also from the second tier. The rotation of the "blue" is carried out regularly. On the exchange, there are criteria for inclusion and exclusion from ranked lists. When selecting an investment object in the form of preferred shares, one must evaluate the company's profitability. Over the course of the year, the paper will remain in a narrow price range, but before the registry is cut off, a fee will soar. An investor who understands the issuer's economic situation will have to decide whether to choose exchange rate growth or annual payment.
Dividends are part of the company's profits. Accrual occurs at least once a year. The board of directors, for a combination of reasons, can leave profits undistributed and not accrue dividends. If the Charter does not stipulate a fixed share and frequency of payments, then all co-owners are left without remuneration. But then the owners of profitable shares get the right to vote at the annual general meeting next year.
The size of dividends on preferred shares is indicated in the constituent documents of the company. This is either a specific figure in percent and rubles, or an indication of the rules for determining. For example, the Board of Directors considers the results of a quarter or a year. It makes a decision - to recommend to the general meeting of co-owners to pay dividends on elite shares. Indicated on one share.
Investing and dividends
The charter is the law of the company, which stipulates the payment of dividends on preferred and ordinary shares.
Investing in the capital of a successful organization brings additional income to the co-owner. Previously, the constituent documents of companies indicated the mandatory percentage of deductions from net profit in favor of the owners of elite shares. Now more and more often companies are adjusting the charter, the amendments provide for the determination of the share to remuneration at the suggestions of senior managers.
In a situation where the company has a loss, dividends can be forgotten. But there are more frequent cases when there is profit, and the Board of Directors recommends not paying a penny to the co-owners.
Sberbank: a brief history of the action
Since the shares were fragmented and the face value was set at 3 rubles for each type of securities, ordinary ones went up more intensively.
In 2018, Sberbank preferred shares narrow the gap with ordinary securities.
The amount does not attract dividend yield. But in conjunction with the increase in market prices looks respectable.
It should be understood that the company has not much interest in shareholders - individuals. A major player and plays big, attracting foreign funds.
Listing Procedure
When summing up the results of a quarter, half a year or a year, the Board of Directors makes a decision on the remuneration of investors holding shares. Subject to the provisions of the Charter and the dividend policy, the following payment amounts are recommended:
- Accrued but not paid.
- Counted on elite shares.
- Due on ordinary shares.
Payments on preferred shares are made at the same time as on ordinary shares - within 60 days from the date of the decision to pay and no later than 25 days from the date the shareholders register is cut off.
Finances are credited to the client's brokerage account. The shareholder is not required to pay income tax on his own. The issuing company is a tax agent and holds 13%. No dividend payments are made to any social funds. Amounts are received cleared.
Credited finances are permissible to reinvest in order to increase income. And you can invest in a useful business: study, health or rest.