Noncumulative

DEFINITION of 'Noncumulative'

A type of preferred stock that does not pay the holder any unpaid or omitted dividends. If the corporation chooses to not pay dividends in a given year, the investor does not have the right to claim any of those forgone dividends in the future.

BREAKING DOWN 'Noncumulative'

In the case that preferred shares are cumulative, holders are entitled to any missed or omitted dividends. For example, let's assume that ABC Company chooses to not pay its $1.10 annual dividend to its cumulative preferred stockholders. In this case, these shareholders do not receive the dividend this year, but they are entitled to collect this dividend at some point in the future. If the preferred shares mentioned above were noncumulative, the shareholders would never receive the missed dividend of $1.10. The example above illustrates why a cumulative preferred share is worth more than a noncumulative preferred share.

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