URL copied to clipboard
Difference Between Cumulative And Non Cumulative Preference Shares

5 min read

Difference Between Cumulative And Non Cumulative Preference Shares

The difference between cumulative and non-cumulative preference shares is that Cumulative preference shares accumulate unpaid dividends, ensuring shareholders receive all past and current dividends during a payout. Non-cumulative shares don’t accumulate, leaving shareholders without entitlement to missed dividends.

Content :

What Is Cumulative and Non-Cumulative Preference Shares?

Cumulative preference shares entitle shareholders to receive unpaid dividends from past years if the company couldn’t pay them. Non-cumulative preference shares don’t accumulate unpaid dividends; if a company skips a dividend, shareholders with non-cumulative shares won’t receive those missed payments.

Alice Blue Image

Cumulative Preference Shares vs Non-cumulative Preference Shares

The difference between cumulative and non-cumulative preference shares is how they handle unpaid dividends. Cumulative shares accumulate unpaid dividends, ensuring future payouts, whereas non-cumulative shares may result in shareholders preceding missed dividends.

Accumulation of Unpaid Dividends

Cumulative Preference Shares accumulate unpaid dividends, ensuring that if a company skips dividends, they carry over. Shareholders feel secure, expecting both current and unpaid dividends later. In contrast, Non-Cumulative Preference Shares don’t accumulate. If dividends are skipped, shareholders may miss out without assurance of future compensation.

Shareholders’ Rights

Cumulative shareholders are entitled to unpaid dividends, expecting future compensation for missed payouts. In contrast, Non Cumulative shareholders might anticipate a different level of compensation, as omitted dividends may not necessarily lead to subsequent payouts, affecting their view of risk and returns.

Risk and Stability

Cumulative Preference Shares offer shareholders a steadier income by accumulating unpaid dividends, ensuring missed payouts are recovered in the future. In contrast, Non-Cumulative Preference Shares pose a higher risk, as any missed dividends in a period are not recoverable, potentially leading to shareholder income fluctuations.

Treatment of Missed Dividends

Cumulative Preference Shares provide a safety net for shareholders when dividends are skipped. Any missed dividends accumulate and must be paid out in the future, assuring shareholders they will receive both current and accumulated dividends when the company resumes payments. On the other hand, non-cumulative preference shares lack this safety net. If dividends are not declared in a specific period, shareholders may miss out on those dividends without guaranteeing future compensation.

To understand the topic and get more information, please read the related stock market articles below.

Active Vs Passive Investing
Conservative Investment
Aggressive Investment
Cumulative Preference Shares
Non Cumulative Preference Shares
Types Of FDI

Cumulative Vs Non Cumulative Preference Shares – Quick Summary

  • The difference between cumulative and non-cumulative preference shares is that cumulative shares accumulate unpaid dividends, ensuring a safety net. In contrast, Non-Cumulative doesn’t get, potentially leaving shareholders without compensation for missed payouts.
  • Cumulative Preference Shares accumulate unpaid dividends, assuring shareholders that missed dividends carry over, providing a safety net. Shareholders can expect to receive both current and previously unpaid dividends.
  • Non-Cumulative Preference Shares don’t accumulate unpaid dividends. If dividends are skipped, shareholders may miss out without assurance of future compensation, impacting their income.
  • Start your investment journey with Zero Account Opening Charges and a ₹20 brokerage fee for Intraday and F&O orders. Enjoy Lifetime Free ₹0 AMC with Alice Blue!
Alice Blue Image

Difference Between Cumulative And Non Cumulative Preference Shares – FAQs  

1. What is the difference between cumulative and non-cumulative preferred shares?

The key difference between cumulative and non-cumulative preferred shares is that Cumulative shares accumulate unpaid dividends, while non-cumulative shares do not.

2. What are cumulative shares?

Cumulative shares collect unpaid dividends, ensuring shareholders receive both current and past dividends when payments resume.

3. What are non cumulative preferred shares?

Non-cumulative preferred shares do not accumulate unpaid dividends, potentially leaving shareholders without compensation for missed payouts.

4. What are the advantages of non-cumulative shares?

An advantage of non-cumulative shares is less financial commitment when dividends are missed, giving the company more flexibility.

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:

What is IPO Full FormCrude Oil Mini
Difference between Futures and Optionsdrhp full form
What is an ETF?standard deviation in mutual fund
Stock Market AnalysisConstruction Stocks India
Difference between FDI and FIILimit Order
How to Buy Shares OnlineBTST Trading
ddpi full formHow to Become a Sub Broker?
Iron CondorSensex vs Nifty
All Topics
Related Posts
What Is Premium In Stock Market English
Finance

What Is Premium In Stock Market?

Premium in the stock market refers to the additional amount that an investor pays above the intrinsic or face value of a stock or option.

Expiry Day Option Buying Strategy
Finance

Expiry Day Option Buying Strategy

Expiry Day Option Buying Strategy involves purchasing options on the day they expire to take advantage of high volatility and rapid price movements. Traders use

QIB Full Form
Finance

QIB Full Form

QIB stands for Qualified Institutional Buyer. These are institutional investors, such as mutual funds, insurance companies, and foreign portfolio investors, authorized by financial market regulators