Which statement about cumulative preferred stock is correct?

Which statement about cumulative preferred stock is correct?

• A. They are always non-cumulative
• B. They require voting rights
• C. They never accumulate
• D. Dividend payments accumulate if not paid

Answer: (D)

Cumulative dividends are a feature where any unpaid dividend is carried forward and owed to shareholders, to be paid later before any dividends can go to common stockholders. This makes the statement about dividend payments accumulating if not paid correct, because the whole point of cumulative preferred stock is that missed payments don't disappear—they accumulate as arrears until they’re paid. Context helps: not all preferred stock is cumulative—there are non-cumulative types where missed dividends aren’t owed later—but when a stock is cumulative, the company must clear those past-due dividends before paying dividends to others, such as common shareholders. It’s also not typical for preferred stock to come with voting rights, which is why claiming they require voting rights isn’t accurate in general. And saying they never accumulate is the opposite of what cumulative means. So, the correct idea is that dividend payments accumulate if not paid.

Cumulative dividends are a feature where any unpaid dividend is carried forward and owed to shareholders, to be paid later before any dividends can go to common stockholders. This makes the statement about dividend payments accumulating if not paid correct, because the whole point of cumulative preferred stock is that missed payments don't disappear—they accumulate as arrears until they’re paid.

Context helps: not all preferred stock is cumulative—there are non-cumulative types where missed dividends aren’t owed later—but when a stock is cumulative, the company must clear those past-due dividends before paying dividends to others, such as common shareholders. It’s also not typical for preferred stock to come with voting rights, which is why claiming they require voting rights isn’t accurate in general. And saying they never accumulate is the opposite of what cumulative means.

So, the correct idea is that dividend payments accumulate if not paid.