1. What is Preference Dividend?

Preference dividend is a fixed dividend paid to preference shareholders before any dividend is paid to common stockholders. It's calculated based on the par value of the shares and a fixed dividend rate.

2. How Does the Calculator Work?

The calculator uses the preference dividend formula:

Where:

• \( \text{Par Value} \) — Nominal value of the preference share (USD)
• \( \text{Dividend Rate} \) — Fixed dividend rate (as decimal)

Explanation: The formula multiplies the par value of the preference share by the fixed dividend rate to determine the annual dividend per share.

3. Importance of Preference Dividend Calculation

Details: Calculating preference dividends is essential for financial planning, determining payout obligations, and understanding the cost of preference capital for a company.

4. Using the Calculator

Tips: Enter the par value in USD and the dividend rate as a decimal (e.g., 5% = 0.05). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between preference and common dividends?
A: Preference dividends are fixed and paid first, while common dividends are variable and paid after preference dividends.

Q2: Are preference dividends cumulative?
A: They can be, depending on the share terms. Cumulative preference shares accumulate unpaid dividends.

Q3: What happens if a company can't pay preference dividends?
A: For cumulative shares, dividends accumulate. For non-cumulative, they're typically lost.

Q4: How often are preference dividends paid?
A: Typically quarterly or annually, as specified in the share terms.

Q5: Is preference dividend tax-deductible for companies?
A: No, unlike interest payments, dividends are paid from after-tax profits.