Convertible vs. Participating Preferred Stock

Posted on 04. Aug, 2008 by in Graphical Examples

Convertible Preferred Stock will either convert into common or stay as preferred (and take out its liquidation preference and dividend) in a exit event. For Participating Preferred Stock, the liquidation preference and dividends are taken out, and then converts into common. In common, the Participating Preferred Stock takes their ownership amount along with the other common shareholders. Sometimes this is referred to as “double dipping”.

The example to the right illustrates how each type of preferred stock behaves given the same exit event. Participating will always give a higher return to the investor than convertible. Try some different exit values to see how each type of stock behaves.

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  • IntegratedS

    I think dividend investing is popular among retirees and
    those who want to live on their money and are no longer able to work.

    preferred stocks

    • Herman

      That is why the preferred shares are some times referred to as “for widows and orphans” fund.

  • Figo

    Quite clear but the pies are wrong (they are always the same), which makes it quite confusing.

  • izraulhidashi

    …and what’s it called when a loan exists as a stock simutaneously?