A type of 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). Holders of noncumulative preferred stock do not have the rights to any dividends if the dividends are not declared in the current period. Therefore, unpaid dividends will be missed and holders lose the right to any such dividends.
By contrast, cumulative preferred stocks constitute a class of preferred stock that entitles an investor to dividends that were missed from period to period.
