Non-Cumulative

We love stock dividends. We love when they actually...pay them. And yes, sometimes dividends get halted. It’s a board decision to do so. It usually means that the company is in dire straits (and not the rock group). So bad things are happening, and then the company halts the dividend.

Well, dividends come in two flavors, really. Cumulative and non-cumulative. And in this sense, the flavor of stock behind paying the dividend is preferred shares instead of common, though cumulative and non can apply to common as well—it’s just rare.

Okay, so you have dire straits. The 20-cent-a-quarter divvy is halted. If it’s non-cumulative, then, well...maybe three quarters later, the company reinstates the dividend. And it pays 20 cents a quarter as it had in the past. Nothing else changes. No backsies.

If the dividend was cumulative, however, then after a lapse of three quarters, if the company ever wanted to pay a dividend again, it’d have to accumulate (see the cumulative thing in there) the previous missed quarters of payment. That is, the company would, on its first return to paying dividends in Q4, pay back the trailing three dividend payments of 20 cents, and then add the recent quarter for another 20 cents, for a one-time 80-cent payment, only to then return to the quarterly payment of 20 cents again and again and again.

Bottom line: if you have to go to a showdown on cumulative versus non, then something very very bad happened at this company in which you invested. But if you did invest, it’s nice getting back the cumulative trailing dividends.