What type of shares typically receive dividends before ordinary shares?

Preference shares are designed to provide certain advantages over ordinary shares, particularly in relation to dividends. Holders of preference shares typically receive dividends before ordinary shareholders. This preference status means that in the event of profit distribution, such as a dividend declaration, preference shareholders are prioritized for payment.

This structure gives preference shareholders a more secure income stream, as their dividends are often set at a fixed rate, making them less susceptible to fluctuations compared to ordinary shares. Ordinary shares, on the other hand, may receive dividends only after all obligations, including preference shares, have been honored.

Debentures, whether secured by a fixed or floating charge, represent a form of debt rather than equity in the company, and their returns will usually take priority over equity payments, depending on the terms of the debenture itself. However, they are not classified as shares and hence do not fit the criteria of receiving dividends before ordinary shares.