Final answer:
Common shareholders get stock dividends only after all owed dividends to cumulative preferred shareholders are cleared. A firm doesn't promise a fixed rate of return on stock; it depends on dividends and stock price changes. A board makes decisions in companies with many shareholders.
Step-by-step explanation:
When it comes to dividends and preferred stock, there are certain rules that come into play. Preferred shareholders, particularly those owning cumulative preferred stock, have a priority claim over common shareholders regarding dividend payments. If a company has opted not to pay dividends to cumulative preferred shareholders, those dividends are accrued and must be paid out before any dividends can be distributed to common shareholders. Hence, common shareholders will receive stock dividends only after all accumulated dividends owed to cumulative preferred shareholders are paid.
Companies typically do not promise a specific rate of return when selling stock; instead, the return comes from dividends—which can vary and are never guaranteed—and from potential stock price appreciation, which also cannot be guaranteed. When a company is owned by a large number of shareholders, decision-making is typically vested in a board of directors elected by shareholders to manage the company's affairs on their behalf.