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A participating preferred stock that may be converted to common stock by a certain date. Like all participating preferred stock, a PEPS entitles the shareholder to a certain minimum dividend. The dividend paid may be higher than the minimum, depending upon company performance. In any case, these dividends must be paid before any dividends are paid on common stock; if a company is unable to pay dividends on participating preferred stock, stockholders have the right to force the liquidation of the company. The conversion feature of a PEPS gives it a great deal of flexibility for the shareholder.
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Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.