Bill Affleck is thinking about buying preferred stock of Ceylon Holdings. He wants to be protected if the company needs to omit a dividend payment. He wants any unpaid dividends to accumulate and be paid before any common stock dividends are paid. What feature of preferred stock would protect Ben?

Question

Lucia Ponce

Social Studies

19 January, 09:35

Bill Affleck is thinking about buying preferred stock of Ceylon Holdings. He wants to be protected if the company needs to omit a dividend payment. He wants any unpaid dividends to accumulate and be paid before any common stock dividends are paid. What feature of preferred stock would protect Ben?

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Answers (1)

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Tessa Quinn · Answer 1

Cumulative feature

Explanation:

Most preferred stock is cumulative. This means that if for some reason, a firm fails to pay its preferred dividend, it cannot pay dividends on its common stock until it has satisfied all or a reasonable amount of preferred dividends in arrears.