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What Are Perpetual Investments?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 November 2016
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    Conjecture Corporation
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Perpetual investments are various types of securities that are not structured with any type of expiration or maturity date, and have the potential to provide an ongoing stream of returns for as long as the investor owns the assets. The term is often used to refer to bond issues that are considered non-redeemable but are structured with regular payouts of interest to investors. It can also be used in connection with certain types of stock issues that carry the ability for the issuer to redeem the shares under certain conditions, while providing an ongoing source of income by means of dividend issues.

One of the more common examples of perpetual investments is perpetual preferred stock. Stock of this type does not carry any type of maturity date and generally provides dividend payments according to a pre-determined schedule. In some cases, the structure of the stocks allows the investor to opt for cumulative payments, meaning that instead of receiving a dividend payment each period, the investor can choose to allow the payments to accumulate over time, then be disbursed on a less frequent basis. For example, if the issuer would normally provide a dividend payment every six months, the investor may have the option to defer the payment and receive a cumulative dividend once per year.

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A certain class of bonds are also examples of perpetual investments. With this type of bond, there is no maturity date and the issuer does not reimburse the investor for the original purchase price. Instead, the investor receives ongoing interest payments for as long as he or she continues to hold the bond. A relatively popular investment option in the 19th century, some of these bonds were structured so ownership could pass from parent to child, effectively creating a source of income for each generation. Perpetual investments of this type are not available worldwide, with some nations imposing regulations that make the issue of bonds without a maturity date impossible to issue.

While perpetual investments do have the drawback of not being able to redeem the assets, this is often offset by the continued stream of benefits in the form of dividends or interest payments. It is possible to sell most of these investments to a different investor if desired, with the benefits migrating to the new owner. In many instances, perpetual investments are held for years or even decades before they are sold, providing a degree of financial security that is difficult to create using other methods.

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