What is a preferred dividend?

A preferred dividend is a dividend that is allocated to and paid on a company's preferred shares. If a company is unable to pay all dividends, claims to preferred dividends take precedence over claims to dividends that are paid on common shares . Preferred dividends refer to the cash dividends that a company pays out to its preferred shareholders.

Can a preferred stock pay dividends in arrears?

The preferred stock pays a fixed percentage of dividends. However, a firm can skip the equal payment of preferred dividends to preferred shareholders. And the firm can choose to pay the dividends in arrears. That’s why we call it perpetuity because the dividend payment is equal and paid for an infinite period.

Are preferred stock dividends deducted on the income statement?

Preferred stock dividends are deducted on the income statement. The reason is that preferred stockholders have a higher claim to dividends than common stockholders do. Many companies include preferred stock dividends on their income statements; then, they report another net income figure known as "net income applicable to common."

What is a non-cumulative preferred dividend?

Non-cumulative preferred dividends, by contrast, only get paid if the company pays a dividend. If the company misses a payment, the company is not obligated to make it up later. Basically, all non-cumulative stock may be disregarded, even after going into arrears.