Participating Preferred Stock
Definition of 'Participating Preferred Stock'A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend based on some predetermined condition.The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per-share amount. Furthermore, in the event of liquidation, participating preferred shareholders can also have the right to receive the stock's purchasing price back as well as a pro-rata share of any remaining proceeds that the common shareholders receive. |
|
Investopedia explains 'Participating Preferred Stock'For example, suppose Company A issues participating preferred shares with a dividend rate of $1 per share. The preferred shares also carry a clause on extra dividends for participating preferred stock, which is triggered whenever the dividend for common shares exceeds that of the preferred shares.If, during its current quarter, Company A announces that it will release a dividend of $1.05 per share for its common shares, the participating preferred shareholders will receive a total dividend of $1.05 per share ($1.00 + 0.05) as well. Participating preferred stock is rarely issued, but one way in which it is used is as a poison pill. In this case, current shareholders are issued stock that gives them the right to new common shares at a bargain price in the event of an unwanted takeover bid. |
Related Definitions
Articles Of Interest
-
Mergers And Acquisitions: Understanding Takeovers
In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game. -
A Primer On Preferred Stocks
Offering both income and relative security, these uncommon shares may work for you. -
Knowing Your Rights As A Shareholder
We delve into common stock owners' privileges and how to be vigilant in monitoring a company. -
Does issuing preferred shares offer a tax advantage for corporations?
There is no direct tax advantage to the issuing of preferred shares when compared to other forms of financing such as common shares or debt. The reason for this is that preferred shares, which ... -
What is the difference between preferred stock and common stock?
Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's assets and earnings. This is true during the good times when the ... -
Stock Basics Tutorial
If you're new to the stock market and want the basics, this is the tutorial for you! -
A Peek Into Shareholder Meetings
Shareholder meetings can be glamorous, exciting or controversial, but not particularly revelational. Here's a quick look at what to expect. -
Weighted Average Cost Of Capital (WACC)
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality -
Earnings Guidance: Can It Accurately Predict The Future?
Explore the controversies surrounding companies commenting on their forward-looking expectations. -
Guide To Embedded Options In Bonds
Investors should be aware of embedded options that may be available in certain securities as these options may affect the value of the security.
Free Annual Reports