What is an Accumulated Dividend?

An accumulated dividend is a dividend on cumulative preferred stock that is due but has not yet been paid. This situation arises because preferred stock frequently requires a dividend to be paid in a specific amount at certain fixed intervals. If a business does not have sufficient cash to pay these dividends, then it has an obligation to pay them before any other dividends can be paid out. Thus, the holders of cumulative preferred stock have a payment preference over the holders of non-cumulative preferred stock and common stock. Investors prefer cumulative preferred stock, since they will earn the right to receive dividends at some point in the future, even if the company does not have the cash flow to make the payments right now.

Accounting for an Accumulated Dividend

An accumulated dividend is an obligation of the corporation, so it is recorded as a liability on the balance sheet until it is paid. It is classified as a current liability, since it is essentially overdue for payment.