Cumulative preferred stock has a distinctive protection — if a dividend is skipped, it accumulates as “arrears” that must be paid in full before common shareholders receive anything.
How it works
Par value times the dividend rate times shares outstanding gives the annual dividend due. Multiplying by years unpaid and subtracting any dividends actually paid gives the total arrears owed.
What this does not include
This doesn’t compute interest or penalties on the arrears themselves — cumulative preferred arrears typically don’t accrue additional interest, just the unpaid dividend amount itself, though specific terms can vary by issuance.
How to use this calculator
- Enter par value, dividend rate, shares outstanding, years unpaid, and dividends already paid.
A worked example
Par value $100, 6% dividend rate, 10,000 shares outstanding, 3 years unpaid, no dividends paid: annual dividend due = $60,000, arrears (total owed) = $180,000 — three years of unpaid cumulative dividends stacking up.
What the variables mean
| Variable | Meaning |
|---|---|
| Par value | Face value per preferred share |
| Dividend rate | Annual dividend rate as a percentage of par value |
| Shares outstanding | Number of preferred shares |
| Years unpaid | How many years dividends have gone unpaid |
| Dividends paid | Any partial payments already made toward the arrears |
Edge cases worth knowing
Cumulative preferred dividends must be paid in full before any common stock dividends — unpaid amounts accumulate as arrears rather than disappearing, a key protection for preferred shareholders over common shareholders.
Dividends already paid that exceed the arrears owed makes the calculation invalid, so the calculator declines to show a result for that case.
Frequently asked questions
What’s the difference between cumulative and non-cumulative preferred stock?
Non-cumulative preferred stock simply forfeits a skipped dividend permanently; cumulative preferred stock instead accumulates it as arrears that must eventually be paid.
Can a company pay common dividends while preferred arrears exist?
No — cumulative preferred arrears must be paid in full before any dividend can go to common shareholders, a key protection built into the cumulative feature.
Does skipping a cumulative preferred dividend constitute a default?
Generally no — unlike missing a bond interest payment, skipping a cumulative preferred dividend isn’t a default; it simply creates an arrears obligation that must be satisfied before common dividends resume.
