Question

A stockbroker advises a client to "buy preferred stock...with that type of stock, you will never have to worry about losing dividends." Is the stockbroker correct? Please include information about cumulative preferred stock and dividends in arrears when developing your post.

Answer 1

Yes.Stock broker is correct .Preferred stock is a type of stock that provide a right to the holder a fixed dividend and it has priority than ordinary shares dividend.A client Preferring this stock will never have to worry about losing dividends.Cumulative preferred stock is a type of preferred stock.In this stock holders have priority over other classes of preferred stock and ordinary share holders when receiving dividend which is not received in past ie the dividend in arrears.It is paid depending on the par value.Dividend in arrears means dividend not paid on prescribed date to the holders of stock.