Accumulated Dividends

Accumulated Dividends means, with relation to any share of stock, as of any date, the combination accumulated and unpaid dividends on such share from and including the foremost recent Dividend Payment Date to which dividends are paid (or the difficulty Date, if such date is before the primary Dividend Payment Date) to but not including such date.

An accumulated dividend is an unpaid dividend on a share of cumulative preferred stock. This type of preferred stock stipulates any skipped dividends must be paid to its holders before common shareholders can receive dividends. Thus, once financial conditions improve, and also the company is in a position to pay dividends again, shareholders of preferred shares stock will receive their dividends before all other shareholders.

Preferred stock can either be “non-cumulative,” which is traditionally the case or “cumulative when it involves dividends. Non-cumulative shares are entitled to dividends given that dividends are declared. Some investors might want a guaranteed return on preferred shares. A preference shares stock allows the investor to earn dividends no matter the company’s ability to pay them immediately or within the future.

For example, If the Conversion Date for any shares of Series B Preferred Stock is prior to the close of business on a Dividend Record Date or an Accrued Dividend Record Date, the Holder of such shares will not be entitled to any dividend in respect of such Dividend Record Date or Accrued Dividend Record Date, as applicable, other than through the inclusion of Accrued Dividends and Accumulated Dividends as of the Conversion Date in the calculation under Subsection 6(a) or 7(a), as applicable.

The Corporation shall be entitled to at any time and from time to time, at its option, to declare and pay all or any a part of the Accrued Dividends or Accumulated Dividends in cash and, following such payment, such paid Accrued Dividends or Accumulated Dividends, as applicable, shall now not be deemed Accrued Dividends or Accumulated Dividends hereunder.

Accumulated dividends must be paid before any other dividends can be paid out. Thus, the holders of cumulative preferred stock have a payment preference over the holders of non-cumulative preferred stock and common stock. Investors prefer cumulative preferred stock since they will earn the right to receive dividends at some point in the future, even if the company does not have the cash flow to make the payments right now.

For example, a company at the time of vesting might enter an investor’s accumulated dividend payable amount into its payroll system, with the dividend income to be included in their W-2 that year. There maybe be taxes to be deducted from the sum of dividend payment income.

The actual dividend payment issued, minus taxes would seem in an exceedingly paycheck after the investors restricted stock awards. The disbursement of that payment may well be “as soon possible” after the restricted stock awards vest.

 

Information Sources:

  1. lawinsider.com
  2. investopedia.com