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 ...
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  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. Do mutual funds pay interest?

    Some mutual funds pay interest, though it depends on the types of assets held in the funds' portfolios. Specifically, bond ... Read Full Answer >>
  6. Do dividends affect working capital?

    Regardless of whether cash dividends are paid or accrued, a company's working capital is reduced. When cash dividends are ... Read Full Answer >>

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