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Preferred stock participating characteristic

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In the summary of the preferred stock vs. common stock, one of the things mentioned was that "Preferred stockholders do not participate in the earnings of the company beyond the stated rate in the way that common stockholders do."

This is not always the case. Sometimes preferred stock is structured so that they will share in any dividends given to common shareholders that exceed their stated divided rate. Example: If they received a 5% dividend first and then the company issues 6% dividends to common shareholders, they will be entitled to receive the extra 1%.

What is this called and is it a common characteristic of issued preferred stock?

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Solution Summary

The preferred stock participating characteristics are determined.

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ANSWERS

This is the so-called participating characteristic of the preferred stocks. ...

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