Nu-Tek has preferred stock outstanding that pays a cumulative $1.50 dividend per quarter. This company has not paid any of its dividends for the past two quarters. How much must be paid as a dividend for each share of preferred stock if the company plans to pay a dividend to its common shareholders this upcoming quarter?

Question

Quizplus · Accepted Answer

Since the dividends are cumulative and the company has missed two quarters of payments, each preferred shareholder is owed $1.50 for each of those quarters, totaling $3.00. Additionally, to pay dividends to common shareholders this upcoming quarter, the company must also pay the current quarter's preferred dividend of $1.50. Therefore, each preferred shareholder must be paid $4.50 before any dividend can be paid to common shareholders.

Nu-Tek Has Preferred Stock Outstanding That Pays a Cumulative $1