Participating Preferred Stock

Participating preferred stock is a type of preferred stock that offers shareholders the right to receive dividends at a fixed rate and participate in additional profits alongside common shareholders if the company achieves certain financial targets. In liquidation events, participating preferred shareholders are entitled to their fixed dividend plus a share of any remaining assets distributed to common shareholders. This type of stock combines the fixed income features of preferred stock with potential upside from the company’s performance.

Example

A participating preferred shareholder receives a fixed 5% dividend and, if the company meets certain profit targets, is also eligible for a share of extra dividends paid to common shareholders.