Common and preferred shares: what actually differs

Many Russian companies have two classes of shares trading at once, and the difference between them is not cosmetic.

The common share

It carries a vote at the shareholders meeting and a right to a dividend if one is declared. No priority: creditors and preferred holders are paid first, and what remains is what remains.

The preferred share

Usually no vote, but priority: its dividend is declared first and is often calculated by a formula written into the company charter.

The vote comes back

If the preferred dividend is not paid, those shares typically acquire voting rights until payments resume. The mechanism protects a holder from ending up with neither the money nor any influence.

Why the prices differ

The gap between the two classes is the price of the vote plus the market's estimate of non-payment risk. For a private investor the vote rarely has practical value: their stake does not change the outcome of any ballot.

Hence a common approach: all else equal, prefer the cheaper class. The caveat is liquidity — preferred issues usually trade in smaller volume, see Liquidity: noticed only once it runs out.

What to check before buying

The charter's wording on the preferred dividend, the payment history, and the price gap between classes. Related reading: Dividend policy: how to read it and what to believe in it.