What is Participating preferred stock?
In short
Participating preferred stock receives its stated dividend and then shares in further dividends with common stock once common shareholders have received a matching rate. Fully participating shares share without limit; partially participating shares up to a cap.
Key takeaways
- Cumulative and participating are separate features that can be combined.
- Earnings per share uses the two-class method when participating securities exist.
- Most preferred stock is nonparticipating.
Where it's tested
FAR: Equity & Earnings Per Share — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company has net income of $600,000 and paid $50,000 in dividends on cumulative preferred stock during the year, none of which were declared. What amount should be used as the numerator for basic EPS?