Cumulative Preferred Stock

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DEFINITION of 'Cumulative Preferred Stock'

A type of preferred stock with a provision that stipulates that if any dividends have been omitted in the past, they must be paid out to preferred shareholders first, before common shareholders can receive dividends.

INVESTOPEDIA EXPLAINS 'Cumulative Preferred Stock'

A preferred stock will typically have a fixed dividend yield based on the par value of the stock. This dividend is paid out at set intervals, usually quarterly, to preferred holders. If a company runs into some financial problems and is unable to meet all of its obligations, it will likely suspend its dividend payments and focus on paying the business-specific expenses. If the company gets through the trouble and starts paying out dividends again, it will first have to pay back all of the dividends that are owed to preferred share holders.

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RELATED FAQS
  1. Why do some preferred stocks have a higher yield than common stocks?

    Before we answer this question, let's just take a quick review of what a stock's yield is actually measuring. The yield is ... Read Full Answer >>
  2. Is preferred stock an equity or a fixed-income security?

    Preferred stock is equity. Preferred stock also (usually) has a fixed dividend payout. This is why some investors have referred ... Read Full Answer >>
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