Series 66: Cumulative Preferred Stock

Cumulative Preferred Stock

Corporations can offer different types of preferred stock. Cumulative preferred stock allows dividends to accumulate when a payment is not made. If a corporation misses a dividend payment, it will have to pay the accrued dividend the next time it offers a dividend, before it pays common stockholders. Non-cumulative preferred stock, also called straight preferred, does not accrue unpaid dividends. Few companies issue shares of non-cumulative preferred, since they are unattractive to investors. Non-cumulative will typically offer higher dividends than cumulative preferred stock.

Because of its steady income, cumulative preferred would be most desirable to investors seeking income.

Exam