DEFINITION of 'Income Participating Security - IPS'

A security that comprises a common share and a high-yield bond packaged together to distribute an issuer's cash flow to investors in a tax-efficient manner. An income participating security generally trades on an exchange, and its two components can be separated later and traded individually. The cash flow to investors consists of dividends from the common share component and interest payments from the bond component.

Also referred to as an "income deposit security" or an "enhanced income security".

BREAKING DOWN 'Income Participating Security - IPS'

Income participating securities were designed to distribute high levels of cash flow to American and Canadian investors in U.S. companies, similar to the former Canadian income trusts. However, while IPSs and Canadian income trusts had similar objectives as far as these investors were concerned, IPSs have a legal structure that differs from that of income trusts. Potential issuers of IPSs are those with stable cash flows, limited capital expenditures and low growth prospects in mature industries.

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