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What are cumulative dividends?
Cumulative dividends are dividends which, if not paid when declared, are carried forward (cumulate) and paid in arrears at a later date. Preferred stock cumulative dividends typically become payable (accrue) annually, whether or not they have been declared by the company's board. Investors often reserve the right to require that a company pay all unpaid cumulative dividends in shares upon conversion of the preferred stock or upon a sale of the company. An automatic waiver of unpaid dividends in a sale beyond an agreed minimum valuation would limit the dilutive effects of this payment to your common stockholders.
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