A preferred stock that gives the holder the right to participate in (i.e., receive) any dividend payouts for common stock in addition to those dividends normally paid to common and preferred stockholders. Participating preferred stock pays a  dividend before any dividends are paid to common stock holders. Furthermore, it ranks at a level above common stock in the event of a liquidation (i.e., in terms of priority).

Participatory referred stock is usually issued by private equity investors and venture capital firms as a source of financing, given the specific nature and requirements of such investors/ firms. In this context, it provides a return on investment with a priority over the other stockholders. It is often used in angel investment schemes when investors seek to get a certain return, within short time intervals, on their investment.

Participatory preferred is also known as a participatory preferred share or a participatory preferred stock.