Question

Bill Affleck is thinking about buying preferred stock of Ceylon Holdings. He wants to be protected if the company needs to omit a dividend payment. He wants any unpaid dividends to accumulate and be paid before any common stock dividends are paid. What feature of preferred stock would protect Ben?

Answer 1

Cumulative feature

Step-by-step explanation:

Most preferred stock is cumulative. This means that if for some reason, a firm fails to pay its preferred dividend, it cannot pay dividends on its common stock until it has satisfied all or a reasonable amount of preferred dividends in arrears.