In the shareholder hierarchy, ordinary shares are at the bottom of the hierarchy after bondholders and preferred shareholders. This means that ordinary shareholders are entitled to a company’s dividends but only after shareholders at the top rungs of the ladder have received their cut. The good news is, if the company makes big profits, preferred shareholders are only paid a fixed amount, but ordinary shareholders stand to receive a bigger dividend.
For example…
Let’s say you have some shares in the A2 Milk company. As an ordinary shareholder, you are entitled to the company’s profits in the form of dividends after all other shareholders in the company like the owners and preference shareholders have received their dividends. In this age where more people are developing allergies and are on the lookout for alternative sources of food, you might expect the A2 Milk company will make profits and thus issue you with dividends. Then again, all of this may change at the drop of a hat.
