Some companies, in order to meet this, have divided their ordinary shares into two new classes, one called preferred ordinary, bearing a fixed rate of dividend, and the other called deferred ordinary, taking what remains for division. In fact, the preferred ordinary bears the same relation to the deferred ordinary as preference shares bear to ordinary shares. Suppose a company has paid a dividend on its ordinary shares or stock averaging over a number of years 6 per cent. In one year it may have paid 4-1/4 per cent., in another year 8 per cent. This ordinary stock with its fluctuating dividend is divided into two parts. Each holder of £100 worth of stock receives £50 worth of preferred ordinary, entitled to a fixed dividend of 6 per cent., and £50 of deferred ordinary, entitled to the remainder. Thus in the year when the company paid 4-1/4 per cent., a dividend of 6 per cent. would be paid on the preferred ordinary and a dividend of 2-1/2 per cent. on the deferred ordinary--this making an average of 4-1/4 per cent. on the whole. In a year when a company pays 8 per cent., the preferred ordinary still receives 6 per cent. and the deferred ordinary 10 per cent. Instead of the stock being thus divided, the same object is attained by its duplication or watering. For each £100 of ordinary stock is issued a nominal £100 of preferred ordinary and a nominal £100 of deferred ordinary. In the case of the 4-1/4 per cent. dividend, the preferred ordinary would receive its fixed 3 per cent., and the deferred ordinary the remaining 1-1/4 per cent. Of course, this stock-splitting or stock-watering enables the holder of the original stock to dispose, if he chooses, of either the more speculative or the more stable security.