If preferred stock is participating, it is eligible for more dividends than the stated dividend rate. If you owned a $100 par, 5% preferred stock, you would presumably earn $5 per year, per share (assuming the Board of Directors elected to pay the dividend).
If the preferred stock was participating, you could expect to be paid more than $5 per year if the company had a prosperous year. When the issuer’s business is successful, they will pay a larger dividend to their participating preferred stockholders.
Participating preferred stock is beneficial to the stockholder, therefore it can be sold for higher prices in the market (more demand). Remember, higher prices mean lower yields. Additionally, issuers sell participating preferred stock with lower dividend rates when they’re originally issued.
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