Asked by Nicholas Lalla on Jul 03, 2024
Verified
Nearly all preferred stock comes with the right to receive all past unpaid dividends before common shareholders can receive any dividends. This right is referred to as:
A) the preference feature.
B) the liquidation preference.
C) the cumulative feature.
D) voting preference.
Cumulative Feature
A characteristic of preferred stock that allows for the accumulation of unpaid dividends which must be paid out before any dividends are given to common stockholders.
Preferred Stock
A type of equity security that typically offers fixed dividends and has priority over common stock in asset liquidation.
Unpaid Dividends
Dividends declared by a company's board of directors that have not yet been paid out to shareholders.
- Outline the differences between common and preferred stock, including a discussion on their respective properties.
Verified Answer
MB
Mohammed BaselmJul 04, 2024
Final Answer :
C
Explanation :
The term "cumulative" refers to the fact that if a company doesn't pay dividends in a given year, those dividends accumulate (or "cumulate") and must be paid before any dividends can be paid to common shareholders. This is a common feature of preferred stock, and it is designed to provide income stability to preferred shareholders. The other answer choices are not accurate descriptions of this feature.
Learning Objectives
- Outline the differences between common and preferred stock, including a discussion on their respective properties.