Which type of preferred stock can have varying dividend rates based on the company’s earnings performance?

Participating preferred stock is designed to provide investors with additional benefits based on the company's performance. Unlike straight preferred stock, which pays a fixed dividend rate, participating preferred stock allows investors to receive dividends that may vary depending on certain criteria, such as the company's earnings or if dividends on common stock exceed a specified level. This means that in good financial years, holders of participating preferred stock could receive additional dividends beyond their fixed rate, aligning their returns more closely with the company's success.

In contrast, straight preferred stock has a fixed dividend rate and does not offer any participation in additional earnings. Cumulative preferred stock ensures that any missed dividends are accumulated and must be paid out before common stock dividends are issued, but it still maintains a fixed rate. Convertible preferred stock allows holders to convert their shares into a predetermined number of common shares but does not inherently offer variable dividends based on company performance.