Definition of "Cumulative Preferred Stock"

A type of preferred stock that pays a predetermined dividend at regular intervals. In the event that the company is unable to make the dividend payment, any and all of the dividends due on the cumulative preferred stock will be accrued on the books of the company until the payments can be made. These accumulated dividends must be paid prior to any payment to the common stockholders.

A preferred stock that has a provision stipulating if one or more dividends are omitted (arrearage) because of insufficient earnings or any other reason, the dividends will accumulate until they are paid to shareholders. Cumulative preferred stocks have seniority over common stocks--that is, a common stock dividend cannot be paid until all cumulative preferred dividends are current.