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Finance Glossary

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Cumulative Preferred Stock


The dividend on the preferred stock must be paid before the company can pay the common shareholders a cent.

If it's not paid, then it just builds and builds (a.k.a. accumulates). Usually, dividends are not paid if the company runs into trouble. Once the company gets over the hump and starts paying dividends again, it has to pay up all the missed dividends owed to the preferred stockholders (that amount is the cumulative preferred stock) before paying the common stock folks.

In theory, the company could stiff the preferred holders forever, but that never happens because the common shareholders would revolt and throw those jerks out of their cushy jobs.