8

Question 1

common share benefits

Answer 1

limited liability
favourable tax treatment of dividends and cap gains
voting privileges
liquidity
right to company data and to attend shareholder meetings

Question 2

who decides whether, how much and when to pay a dividend?

Answer 2

board of directors

Question 3

who’s dividend-eligible?

Answer 3

shareholders of record - individuals who have legal ownership of shares before ex-dividend date

Question 4

dividends in unregistered accounts

Answer 4

taxable (including dividend reinvestment plans and stock dividends)

Question 5

preferred - retractable

Answer 5

shareholder can force company to buy back retractable pref at specified date(s) and specified price(s)

Question 6

preferred - redeemable

Answer 6

issuer decides whether the security will be redeemed

Question 7

preferred - convertible

Answer 7

shareholder can convert the shares to another security, usually common shares…at a set price for a set period of time (some convertible prefs allow shareholder AND issuer conversion privileges)

Question 8

straight preferreds

Answer 8

fixed dividend as long as outstanding and shares trade on a yield basis.
more safe than common shares but less safe than debt (dividends are not a legal obligation)
no voting rights
no maturity date
less liquidity than common shares
limited appreciation potential compared to common shares

Question 9

pref share feature: cumulative

Answer 9

any pref dividends in arrears must be paid before either (1) redeeming prefs or (2) paying dividends on common shares

Question 10

pref share feature: non-cumulative

Answer 10

dividends only payable when declared (arrears do not accrue and so no ‘catch-up’ payments are payable

Question 11

pref share feature: callable

Answer 11

can be called or redeemed by issuer at specific time and specific price (usually at a small premium to amount per share asset entitlement fixed by charter). Company will usually buy shares on open market OR through tender invitations to all holders.

Question 12

pref share feature: non-callable

Answer 12

cannot be called or redeemed as long as issuer is in existence. Restrictive to issuer and so rare.

Question 13

pref share feature: voting privileges

Answer 13

almost all prefs are non-voting as long as dividends are paid on schedule. When stated number of dividends are missed, common to give prefs voting rights

Question 14

pref share feature: purchase fund

Answer 14

if price of shares declines to/below a stipulated price, the purchase fund will be used to buy specified amounts of the prefs for redemption. This provides additional security for pref holders.

Question 15

pref share feature: sinking fund

Answer 15

sinking fund will be used to retire shares when they trade at/below a certain price. If issuer can’t do this on the open market they must redeem directly from investors to ensure stipulated amount are redeemed each year