Which type of share typically carries the right to a fixed dividend ahead of ordinary shareholders?

• A. Ordinary shares
• B. Preference shares
• C. Deferred shares
• D. Bonus shares

Answer: (B)

Dividend priority is the key idea here: preference shares are issued to provide investors with a fixed dividend, which is paid before any dividends to ordinary shareholders. This fixed rate is usually expressed as a percentage of par value, giving these investors a predictable income stream. If the preference dividend is cumulative, any missed payments accumulate and must be paid before ordinary dividends when profits are available. Ordinary shares, by contrast, have dividends that vary with the company’s profits and come after fixed obligations to preference shareholders. Deferred shares typically have little or no current dividend rights until specific conditions are met, so they don’t carry a fixed dividend ahead of ordinary. Bonus shares are issued free of charge and do not create a fixed income right or priority in dividends.