A cumulative dividend preference means that:
A)preferred shareholders are paid dividends before common shareholders are paid dividends for the current year only.
B)unpaid dividends to preferred shareholders accumulate and must be paid before common shareholders receive dividends.
C)preferred shareholders are paid their full fixed dividend rate each period as long as the company is in operation.
D)unpaid cash dividends to preferred shareholders must be replaced with stock dividends during the current period.

Question

Quizplus · Accepted Answer

A cumulative dividend preference means that if preferred dividends are not paid in a given period, they will accumulate and must be paid in full before common shareholders receive any dividends. Therefore, option B is the correct choice. Option A is incorrect because it only refers to the current year's dividend, not any unpaid dividends from previous years. Option C is incorrect because it assumes that the company will always be in operation to pay the fixed dividend rate, which may not be the case. Option D is also incorrect because it is not a characteristic of a cumulative dividend preference.

A Cumulative Dividend Preference Means That