What is the difference between cumulative and non-cumulative preferred shares?
A) They both receive dividends in arrears.
B) Cumulative preferred shares' undeclared dividends accumulate each year until paid, while non-cumulative preferred shares' right to receive dividends is forfeited in any year that dividends are not declared.
C) Cumulative does not receive dividends but noncumulative does.
D) Cumulative preferred share's right to receive dividends is forfeited in any year that dividends are not declared. However, noncumulative preferred shares' undeclared dividends accumulate each year until paid.

Question

Quizplus · Accepted Answer

Cumulative preferred shares allow for the accumulation of dividends in the event they are not paid out in any given year, ensuring that shareholders are owed those dividends before common shareholders can receive dividends. Non-cumulative preferred shares do not have this feature; if dividends are not declared in a year, shareholders of non-cumulative preferred shares lose the right to those dividends without compensation in the future.

What Is the Difference Between Cumulative and Non-Cumulative Preferred Shares