Preferred Stock
Which type of preferred stock allows unpaid dividends to accumulate?
Cumulative = dividends accumulate if missed. Non-cumulative = missed dividends are lost forever.
Complete Analysis & Legal Rationale
Cumulative preferred stock accumulates any unpaid dividends (dividends in arrears). These must be paid before any dividends can be paid to common stockholders.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Participating preferred allows shareholders to receive additional dividends beyond the stated rate if the company does well.
Convertible preferred can be exchanged for common stock at a set ratio.
Matches the verified teaching point in the explanation.
Callable preferred can be redeemed by the issuer at a specified price.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.