cumulative preferred stock mean

Expert Solution

Cumulative Preferred Stock are those Preferred Stock, the dividend of which gets accumulated as ‘arrear of dividends’ if not declared or paid in a given period.
For example, lets say that a company has $ 50 par, 5000 cumulative 2% preferred stock shares outstanding.
This means that each year preferred stock holders have the right of 5000 shares x 50 x 2% = $ 5,000 of dividend.
Suppose the company only paid $ 2,000 dividend in a year, then remaining $ 3,000 will get accumulated as ‘arrear of dividend’ and will be paid in future period.
Detailed example is below:

	Par Value per Preferred Share	Dividend rate	Dividend per Preferred Share	No. of Preferred Shares	Preferred Dividend
*Annual Preferred Dividend:*	$ 50	2.00%	$ 1.000	5,000	$ 5,000.00
	Total Cash Dividend paid	Paid to Preferred	Paid to Common	Dividends in Arrears at Year end
Year 1	$ 2,000.00	$ 2,000.00	$ -	$ 3,000.00
Year 2	$ 3,000.00	$ 3,000.00	$ -	$ 5,000.00
Year 3	$ 11,000.00	$ 10,000.00	$ 1,000.00	$ -
Year 4	$ 8,000.00	$ 5,000.00	$ 3,000.00	$ -
TOTAL	$ 24,000.00	$ 20,000.00	$ 4,000.00	$ -

ekkarill92 answered 1 month ago

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