Participating Preferred Stock

A type of pferred stock that gives the holder the right to receive pidends equal to the normally specified rate that pferred pidends receive as well as an additional pidend based on some pdetermined condition.

The additional pidend paid to pferred shareholders is commonly structured to be paid only if the amount of pidends that common shareholders receive exceeds a specified per-share amount.

Furthermore, in the event of liquidation, participating pferred 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.

Taobiz explains Participating Preferred Stock

For example, suppose Company A issues participating pferred shares with a pidend rate of $1 per share. The pferred shares also carry a clause on extra pidends for participating pferred stock, which is triggered whenever the pidend for common shares exceeds that of the pferred shares.

If, during its current quarter, Company A announces that it will release a pidend of $1.05 per share for its common shares, the participating pferred shareholders will receive a total pidend of $1.05 per share ($1.00 + 0.05) as well.

Participating pferred 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.