A class of preferred stock that entitles an investor to receive dividends that were missed from period to period. The stock comes with a provision that stipulates that if any dividend payments have been not paid in the past, the dividends accumulate and must be paid out on a priority basis to holders of cumulative preferred stock.

Dividends on cumulative preferred stock can be calculated by multiplying the par value of the stock by the dividend rate and then adding all dividends, owned to date, in arrears.

Cumulative preferred stock is opposite to the noncumulative preferred stock that does not entitle its holders to receive any dividends that have not been earlier paid- i.e., skipped by a decision by the issuer’s management. The dividends attached to such a stock are not accumulated in arrears over time (and hence are known as noncumulative dividends).