Understanding dual-class shares

Article Excerpt

As a general rule, if a company’s two classes of shares trade for roughly the same price, you’re better off buying the voting shares. That’s because they may move substantially higher than the non-voting shares if a shareholder who is trying to take control of the company accumulates a large enough number to mount a takeover attempt. In addition, voting shares can trade above non-voting shares because certain institutions refuse to buy non-voters, or only buy them in limited quantities. Canadian stocks sometimes combine their voting and non-voting dual-class shares into a single share class to make themselves more attractive to investors (particularly institutional investors). When that happens, the voting shares may get a 10% to 20% premium over the non-voting shares in return for sharing control of the company. So, if you can buy the voting shares for less than, say, a 5% to 10% premium over the non-voting shares, it can be a worthwhile investment. Note that most Canadian stocks…