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.






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