Which feature allows a preferred stock to receive extra dividends beyond the fixed rate?

Which feature allows a preferred stock to receive extra dividends beyond the fixed rate?

• A. Convertible
• B. Cumulative
• C. Participating
• D. Nonparticipating

Answer: (C)

Participating preferred stock allows a holder to receive the fixed dividend and, if the company distributes additional profits, to share in those extra dividends with common stockholders. This means you could get your regular fixed rate plus additional payments when the company pays more to shareholders, often based on a pro rata share with common or up to a certain cap. This differs from cumulative (where missed dividends are owed later), nonparticipating (no extra beyond the fixed rate), and convertible (conversion to common stock rather than extra cash dividends).

Participating preferred stock allows a holder to receive the fixed dividend and, if the company distributes additional profits, to share in those extra dividends with common stockholders. This means you could get your regular fixed rate plus additional payments when the company pays more to shareholders, often based on a pro rata share with common or up to a certain cap. This differs from cumulative (where missed dividends are owed later), nonparticipating (no extra beyond the fixed rate), and convertible (conversion to common stock rather than extra cash dividends).