A participating preferred dividend is a type of preferred stock that pays a set rate of interest per year. Companies can pay this dividend annually, biannually or quarterly. The advantage of this type of preferred stock is that investors can also receive a portion of retained earnings paid to common shareholders in addition to the fixed dividend payment.

1. Determine the fixed dividend rate for the participating preferred stock. You can find this information in the prospectus for the preferred stock. For example, assume the participating preferred stock pays a dividend of 3 percent.

2. Determine the par value for the participating preferred stock. You can also find the par value of the preferred stock in the prospectus for the preferred stock. For example, assume the par value of the participating preferred stock is $10.

3. Multiply the participating preferred dividend rate by the par value of the preferred stock. Continuing the same example, $10 x .03 = $0.30. This figure represents the dividend payment per share of participating preferred stock.

4. Multiply the dividend payment per share of the participating preferred stock by the number of shares of the participating preferred stock issued by the company. For example, assume the company issued 100,000 shares of the participating preferred stock. Continuing the same example, 100,000 x .30 = $30,000. This figure represents the total participating preferred dividend paid out by the company.

5. Determine the total amount of retained earnings the company plans to pay out as dividends. For example, assume the company plans to pay out $100,000 of retained earnings as dividends.

6. Subtract the total participating preferred dividend payment from the total amount of retained earnings the company plans to pay out as dividends. Continuing the same example, $100,000 - $30,000 = $70,000.

7. Subtract an equal amount of dividends paid to the participating preferred stockholders to pay to the common stockholders. Continuing the same example, $70,000 - $30,000 = $40,000.

8. Determine the amount of common stock issued by the company. For example, assume the company issued 100,000 shares of common stock.

9. Add the total amount of common stock to the total amount of participating preferred stock issued by the company. Continuing the same example, 100,000 + 100,000 = 200,000.

10. Divide the remainder of the total retained earnings dividend payment by the total number of outstanding shares of stock. Continuing the same example, $40,000 / 200,000 = $0.20 cents.

11. Add the figure from Step 10 to the participating preferred dividend paid per share of stock. Continuing the same example, $0.30 + $0.20 = $0.50. This figure represents the total dividend paid per share of participating preferred stock.

#### References

- "Principles of Finance"; Scott Besley and Eugene Brigham; 2008

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