This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
Unless otherwise expressly provided, preferred stock participates equally with the common stock in all dividends after both common and preferred have received an equal dividend. That is, if the preferred stock has received its preferential dividend of, say, 6% together with any cumulated arrearages, it participates no further in dividends until 6% has been paid upon the common stock as well, but thereafter both classes of stock stand upon exactly the same basis as to any further dividends declared during that year. If such further participation on the part of the preferred stock is not desired, it must be expressly denied. Ordinarily the charter contains a provision prohibiting such participation, in which case the preferred shares receive their fixed dividends, but no more. Yet there are numerous exceptions to this general rule. For instance, the American Brake Shoe and Foundry Company pays 7% on preferred shares, and follows that with 7% on common shares; the preferred shares are then entitled to all additional earnings. The Chicago, Milwaukee and St. Paul Railroad Company's preferred has a prior claim to 7%. and, after the common has received 7%, shares equally with the common in any further distribution. The Chicago and Northwestern Railway's preferred is entitled to 7%, to be followed by 7% on the common, and then the preferred is entitled to an additional 3% before the common draws anything more. At present the preferred stock of this company is receiving 8%, and the common 7%.
Allis-Chalmers Company preferred draws 7%, then the common 7%, then the preferred is entitled to 1% extra but has no further claim. James Stewart and Company has outstanding $1,500,000 7% cumulative second preferred, which participates equally with the common in further distributions after the common has received 10%. Harrison and Crossfield, Ltd., a large English house dealing in foreign and colonial produce - tea, rubber and the like - has outstanding a preferred ordinary issue of £300,000 drawing a cumulative dividend of 5%. After an equal amount has been paid on the management shares, the balance of the profits are divided equally until the preferred ordinary have received a further 5%; the remaining surplus is the property of the management shares. The preferred ordinary shares have received their full 10%: dividend each year since the formation of the company. Aberthaw and Bristol Channel Portland Cement Company, an English concern, has a preferred issue which is entitled to 10%, and which, after 10%, has been paid on the common, receives two-thirds of the remaining profits.