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Simple English definitions for legal terms
noncumulative dividend
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A quick definition of noncumulative dividend:
A noncumulative dividend is a part of a company's earnings or profits that is distributed to its shareholders. This can be in the form of cash or additional shares. Unlike a cumulative dividend, if a noncumulative dividend is not paid in a particular year or period, it does not accrue for the benefit of a preferred shareholder. This means that if a dividend is not paid in a specific year, the shareholder will not receive it in the future.A more thorough explanation:
A noncumulative dividend is a portion of a company's earnings or profits distributed pro rata to its shareholders, usually in the form of cash or additional shares. Unlike a cumulative dividend, a noncumulative dividend does not accrue for the benefit of a preferred shareholder if there is a passed dividend in a particular year or period.
For example, if a company declares a noncumulative dividend of $1 per share and fails to pay it in a particular year, the shareholders will not receive the missed dividend in the future. The dividend is not cumulative and does not carry over to the next year or period.
Noncumulative dividends are common for common stock, while cumulative dividends are more common for preferred stock. This is because preferred shareholders expect a fixed dividend payment and are willing to forgo the possibility of higher dividends in the future.