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When preferred stock is cumulative, preferred dividends not declared in a period are considered a liability called "dividends in arrears".
What are preferred stocks?
A word "stock" refers to a company's ownership or equity. Common stock & preferred stock are the two types of equity. Preferred investors are entitled to more dividends or asset distributions than common stockholders. The specifics of the each preferred stock vary depending on the issue.
Some key features regarding the preferred stocks are-
- Preferred stockholders have such a greater right to distributions (such as dividends) then common stockholders.
- In corporate governance, preferred stockholders typically have no or limited voting rights.
- In the case of a liquidation, preference shareholders have a stronger claim on assets than ordinary shareholders but a lower claim than bondholders.
- Preferred stock includes qualities of both bonds & common stock, making it more appealing to some investors.
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