Final answer:
Holders of participating preferred stock are the first to receive the regular dividends. Dividends are proportional to the number of shares owned and preferred shareholders have priority over common shareholders.
Step-by-step explanation:
Holders of participating preferred stock are the first to get the regular dividend that is due to them. When a company pays a dividend, it is distributing some of its profits directly to its shareholders, which are people who own at least some shares of stock in the firm. The amount of money received as a dividend is proportional to the number of shares owned. For example, if a stock pays a dividend of 75 cents per share, someone owning 85 shares would receive $63.75. This system rewards shareholders, giving them a direct financial benefit for their investment in the company.
Participating preferred stock typically has a preferential position over common stock when it comes to dividend payments, meaning holders of this type of stock are guaranteed to receive dividends before common shareholders and sometimes earn an additional dividend if the company performs particularly well. This makes participating preferred stock an attractive option for investors looking for a more secure stream of income from their investments in stocks.