Types of Preferred Stock

Convertible preferred stock includes an option for the holder to convert the shares into a fixed number of common shares, following a predetermined date. Convertible preferred stock includes an option for the holder to convert the shares into a fixed number of common shares, following a predetermined date.

Cumulative preferred stock is a type of preferred stock with a provision that stipulates that if any dividend payments have been missed in the past, the dividends owed must be paid out to cumulative preferred shareholders first.

The difference between the two types of preferred stock is that participating preferred stock, after receipt of its preferential return, also shares with the common stock (on an as-converted to common stock basis) in any remaining available deal proceeds, while non-participating preferred stock does not.

DEFINITION of 'Prior Preferred Stock' A type of preferred stock with a higher claim on assets and dividends than other issues of preferred stock. If a firm did not generate enough money to fulfill all of its dividend schedule requirements, those holding prior preferred stocks have first priority.