What is the defining feature of a zero dividend preference share (ZDP)?

What is the defining feature of a zero dividend preference share (ZDP)?

• A. They pay a fixed dividend every year.
• B. They pay no dividend and the investor profits from the difference between the amount paid and the amount received on repayment.
• C. They convert into ordinary shares at maturity.
• D. They guarantee the return of the original investment.

Answer: (B)

Zero dividend preference shares are designed to deliver returns through capital repayment rather than regular income. They pay no dividends during their life, and the investor’s gain comes from the difference between the price paid for the share and the predetermined amount received when the share is redeemed at maturity. This means the payoff is driven by the capital uplift at redemption, not by periodic coupon payments. The other ideas describe instruments with regular income, conversion features, or guaranteed capital, none of which define a ZDP.

Zero dividend preference shares are designed to deliver returns through capital repayment rather than regular income. They pay no dividends during their life, and the investor’s gain comes from the difference between the price paid for the share and the predetermined amount received when the share is redeemed at maturity. This means the payoff is driven by the capital uplift at redemption, not by periodic coupon payments. The other ideas describe instruments with regular income, conversion features, or guaranteed capital, none of which define a ZDP.