{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

A cumulative dividend means if dividends are declared

A cumulative dividend means if dividends are declared -...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
cumulative dividend  means if dividends are declared, preferred stockholders will  receive their current-year dividend plus any dividends not paid in prior years before the  common stockholders receive a dividend. Owning a share of preferred stock that  includes a cumulative dividend still does not guarantee the preferred stockholder a  dividend because the company is not liable to pay dividends until they are declared.  Having cumulative preferred stock simply reinforces the preference preferred  stockholders receive when a dividend is declared. If a company has issued cumulative  preferred stock and does not declare a dividend, the company has  dividends in  arrears . Although not a liability, the amount of any dividends in arrears must be 
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: disclosed in the financial statements. The participating dividend feature provides the opportunity for the preferred stockholders to receive dividends above the stated rate. It occurs only after the common stockholders have received the same rate of return on their shares as the preferred stockholders. For example, say the preferred dividend rate is 5% and the preferred stock has a participating feature. This means that the preferred stockholders will receive a larger dividend if the authorized dividend exceeds the total of the 5% dividend for the preferred stockholder and a 5% dividend to the common stockholders....
View Full Document

{[ snackBarMessage ]}