If dividends omitted on preferred shares must be paid before common stockholders are entitled to any dividends, then the preferred stock must be cumulative.
A dividend is when a company distributes profits to its shareholders. When a company makes a profit or surplus, it may pay a portion of the profit to its shareholders as dividends. Amounts not distributed are reinvested in the company (called retained earnings).
Not only this year's profit but also the accumulated profit of the previous year can be distributed. Companies are generally prohibited from paying dividends out of their share capital. Distributions to shareholders can be paid in cash (usually by depositing into a bank account).
Alternatively, if the company has a dividend reinvestment scheme, the amount can be paid by issuing additional shares or buying back shares. In some cases, asset distributions may occur.
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