Cumulative Dividend


DEFINITION of 'Cumulative Dividend'

A sum that publicly traded companies must remit to preferred shareholders without regard to the company's earnings or profitability. A cumulative dividend must be paid, whereas a regular dividend, also called a non-cumulative dividend, may be paid to or withheld from shareholders at the company's discretion. If a company cannot pay a cumulative dividend when it is due, it is still responsible for paying it in the future, possibly with interest, and it must fulfill this obligation before it can award dividends to common shareholders. This feature makes cumulative preferred shares more valuable than non-cumulative preferred shares or common shares.

BREAKING DOWN 'Cumulative Dividend'

Cumulative dividends are intended to ensure investors a minimum return on their investment in the company. Cumulative dividend provisions may contain limitations, such as being payable only if the company liquidates. Preferred shares usually pay cumulative dividends, but not always. A company that issues cumulative preferred stock must disclose any accumulated, unpaid dividends in its financial statements.

  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Noncumulative

    A type of preferred stock that does not pay the holder any unpaid ...
  4. Cumulative Preferred Stock

    A type of preferred stock with a provision that stipulates that ...
  5. Common Stock

    A security that represents ownership in a corporation. Holders ...
  6. Record Date

    The cut-off date established by a company in order to determine ...
Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  3. Options & Futures

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  4. Fundamental Analysis

    Why Dividends Matter

    Seven words that are music to investors' ears? "The dividend check is in the mail."
  5. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  6. Investing

    3 Cheap Dividend Growth Stocks for Your Portfolio

    Top dividend growth stocks to add to your portfolio.
  7. Investing

    The Pros and Cons of High-Yield Bonds

    Junk bonds are more volatile than investment-grade bonds but may provide significant advantages when analyzed in-depth.
  8. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  9. Retirement

    Is Caterpillar Stock Suitable for Your IRA or Roth IRA?

    Learn about Caterpillar's suitability for a retirement portfolio. Does CAT have long-term viability? Find out if CAT is better for a traditional IRA or Roth IRA.
  10. Financial Advisors

    Ditching High-Yield Bonds for Plain Vanilla Ones

    In a low-rate environment, it's tempting to go for higher yield bonds. However, you might be better off sticking with the plain vanilla ones.
  1. What are the different types of preference shares?

    There are a number of investment options available for those looking to try making money in the stock market. Most people ... Read Full Answer >>
  2. What is the difference between preferred stock and common stock?

    Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's ... Read Full Answer >>
  3. Why don't investors buy stock just before the dividend date and sell right afterwards?

    Many years ago, unscrupulous brokers would use the same logic on their clients as a sleazy sales tactic. These brokers would ... Read Full Answer >>
  4. What is the incentive to buy a stock without dividends?

    While dividends are the only direct income (money paid out), the total return of holding, a stock is the dividend plus the ... Read Full Answer >>
  5. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  6. What are the dividend reinvestment options for a mutual fund?

    There are two primary choices for how investors can choose to handle dividend distributions made by mutual funds that they ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center