I'd just like to get a few opinions on preference shares at the moment in terms of a lower risk investment over the next 1-2 years. I'm considering collecting a few at the moment and my reasoning is as follows... Since the value of the preference share is the dividend it returns, the price of the share is determined by both the dividend and the required rate of return by the investor. The required rate is linked to inflation, interest rates, etc... Currently, inflation and interest rates are quite high. I see that some of the more liquid preference shares are returning a 12-14% dividend yield. At the moment, we're possibly starting to see a slow down in inflation and interest rates may come down over the next year. With the possible decrease in inflation and interest rates, the price of these preference shares will most likely rise. So, assuming that 1) the banks are still around, 2) still issue dividends at their historic returns, 3) interest and inflation goes down over the next year .... what I think I see is a possibility to invest in a lower risk, high dividend yield investment at a low price, with a small potential capital gain in the medium term when interest rates drop. Any opinions?
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