You should have a thorough understanding of all of the features of such a stock before you contemplate purchase. Like a stock, preferreds represent ownership in a company. So, two financial terms include Participating Convertible Preferred Stock & Participating Cumulative Preferred Stock. Thus, from an investor’s perspective, participating preferred stock is preferable to non-participating preferred stock as it allows for both a preferred payment upon liquidation and participation in the upside if the company is sold at a premium. A call feature is a way for a company to protect itself from paying a high rate of interest for too long. For example, a company may issue a preferred stock with a five-year call provision at $25, allowing the company to purchase your preferred from you for $25 per share at any time more than five years in the future. Preferred stock combines many features of common stocks with those of bonds. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults. In the event of the liquidation of a company, assets are distributed according to the priority of the capital structure. Let’s learn about the basic difference between the two and the pros and cons of investing through these stocks. Convertible redeemable preferred stock is an interest-bearing investment with many complex features. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Participating preferred stock is preferred stock that provides a specific dividend that is paid before any dividends are paid to common stock holders, and that takes precedence over common stock in the event of a liquidation. However, participating preferred then participates on an “as converted to common stock” basis with the common stock in the distribution of the remaining assets. Usually, a preferred cannot be converted until a certain date after issuance, often five years or longer, and only at a specified price. Convertible redeemable preferred stock is an interest-bearing investment with many complex features. Participating Preferred Stock is a security that gives venture capitalists a return on investment before the rest of the stock holders get their share earnings. As a preferred stock pays a fixed dividend, the value of the preferred generally fluctuates in line with current interest rates. If a preferred stock pays a 10 percent dividend, and interest rates fall to the point where the company can issue new preferred stock paying just 3 percent, then it would be in the company's best interest to redeem the 10 percent preferred stock and issue the new 3 percent stock.