Convertibles

In chapter 4, top of page 29 it says that the return on convertibles is generally higher than on ordinary shares and lower than on conventional loan stock or preference shares.

I don't understand why this is or the reasoning given (e.g. the exact wording regarding comparison to ordinary shares is "because convertibles do not benefit from the dividend growth enjoyed by ordinary shareholders, convertibles generally provide higher income than ordinary shares". I would have thought that if they do not enjoy the same dividend growth, they would earn a lower income. Also, as they are less risky than ordinary shares I would have thought they earn lower return).

I'll be grateful for any explanation anyone can give!!

Thanks

 

theyre refering to the running yield, inorder to make convertibles attractive to investors, they have to pay a higher coupon rate than ordinary shares, since this ammount is fixed whereas ordinary dividend income increases with time, so as "compensation" the rate of coupon payment is usually higher than for dividends on ordinary shares. If it were the same, it would be pointless buying them, because they would pay the same return as ordinary shares, and carry the same level of risk as convetional loan stock paying higher coupons.