Which type of preferred stock pays an additional dividend when common stock dividends exceed a certain amount?

Participating preferred stock is designed to provide its holders with dividends that can increase under certain conditions. Specifically, this type of preferred stock allows shareholders to receive additional dividends when the company pays dividends to common stockholders that exceed a predetermined amount. This feature makes participating preferred stock particularly attractive, as it not only guarantees a fixed dividend but also gives shareholders the opportunity to benefit from the company's success when the common stock dividends rise significantly.

The potential for additional payments creates a strong incentive for investors seeking both a stable return and the opportunity for excess earnings during profitable periods. This distinction is a key characteristic of participating preferred stock, setting it apart from other types of preferred stock.