Final answer:
Preferred stock is a type of stock that gives its holders certain privileges. When dividends do not accumulate, unpaid dividends are lost forever.
Step-by-step explanation:
Preferred stock is a type of stock that gives its holders certain privileges over common stockholders, such as a guaranteed dividend payment. When it comes to preferred stock in which dividends do not accumulate, it means that if a company fails to pay dividends in a given period, those dividends will not carry forward to future periods. They are lost forever.
For example, let's say a company issues preferred stock with a dividend rate of $1 per share per year. If the company fails to pay the dividend for a particular year, the shareholders will not accumulate the unpaid dividends. The unpaid dividends will not carry forward, and they will be gone forever.
It is important for investors to understand the terms and conditions of preferred stock before investing, as these can vary from company to company.