If there is an equal division of any excess dividends between the preferred shares and common shares, without any limit as to the amount the preferred shares may receive, the preferred stock is said to be nonparticipating.

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Quizplus · Accepted Answer

In this scenario, the preferred stock is said to be participating, as it allows preferred shareholders to receive additional dividends beyond their fixed rate, sharing in excess dividends with common shareholders.

If There Is an Equal Division of Any Excess Dividends