Hello everybody! Ruslan Miftakhov welcomes you, and today I will tell you about cumulative shares, a type of preferred securities. Today we will analyze their differences and advantages from the others.

Securities are an active tool for investors, but not everyone understands the essence of the concept “cumulative”. So, let's get started.

Main classification

First, you need to understand the main classification of shares and decide what place we are considering in it.

Now let's move on to directly consider cumulative shares, which are the most common among preferred shares.

What are their features and advantages?

Their main features, resulting mainly in advantages:

1. They give the right to receive both current dividends and those missed due to the difficult financial condition of the organization or for other reasons. This means that unpaid earnings will accumulate in the shareholder's account for future payments.
2. Accrued debt is repaid before payments are made on the company's common stock.
3. If declared dividends have not been paid, then the owners of cumulative assets can participate in the general meeting of shareholders with the right to vote on all issues discussed at it until all payments due to them are made. Therefore, the founders of organizations, in order not to share votes with the owners of cumulative securities when making important decisions, always try to pay such dividends.
4. Unpaid income accumulates over a period that must not exceed 3 years.
5. This intermediate view between a common stock and a bond. Like a bond, it presupposes a certain purchase price, as well as a guaranteed return. The difference from a bond is that payments on it are still tied to the organization’s profit.
6. The amount of income paid on them is stipulated in the charter of the enterprise. And for some organizations this may be 14% of the value of the asset itself, while for others it can be no less than 10% of the profit received, divided by the number of shares constituting 25% of the total authorized capital.
7. The higher the profit, the higher the tax to be paid. Accordingly, this type of asset requires the payment of a larger amount of tax.

Cumulative, as well as non-cumulative shares, depending on the possibility of exchange for ordinary shares, can be convertible or non-convertible.

If we talk about Russia, our companies do not seek to issue perpetual assets, and generally set a period after which such securities will be converted into ordinary ones or withdrawn. This condition is always specified when the paper is issued, where the exact date of conversion is indicated.

Also, both types of preferred securities according to the method of calculating dividends are divided into:

• Papers with fixed income - assume the establishment of a constant amount of payments upon issue for the entire period of ownership of the asset. And if interest rates decrease, the issuer will make inflated payments, and vice versa, if interest rates increase over time, the investor will receive income below the market one.
• WITH floating(additional) amount of income - assume the presence of a lower limit of paid income in any current situation. The terms of such payments may be adjusted by the issuer. Such assets also entitle their owners to primary participation in the division of the remaining profits after all payments made.
• WITH adjustable a rate at which upper and lower limits of profitability are provided, for example, from 5 to 10%. The paid profit is adjusted depending on changes in interest rates on government bonds, or the rates of financial instruments in the short-term capital market.

This approach reduces the degree of risk for cumulative and non-cumulative securities, but of course it is impossible to completely eliminate them. And if government bonds exceed the ceiling, then shareholders will receive an inflated interest rate.

• WITH auction rate - when the size of the dividend is determined at an auction held by the issuing company or bank. The idea is that prospective investors submit applications indicating the amount of expected profit and the number of assets to be purchased. After which the auction organizer summarizes and analyzes all the information to determine the level of income. It is this type that most truthfully reflects the current market situation.

Based on the above, I would like to conclude that investing in cumulative shares is quite a profitable business, will you agree with me? After all, their exchange rate is growing, and dividends are guaranteed to be paid.

Of course, in any case, before making a decision to invest in the assets of a particular company, you need to take into account all the factors and features of the invested object that affect the future expected profit.

Well, for better understanding, reinforce the material with the video below.

I would like to wish you success! And this is where we end today’s article.

Goodbye! Best regards, Ruslan Miftakhov.

To increase the attractiveness of its preferred shares, a company may offer investors a payout cumulative dividends. This means that during periods when the board of directors decides not to pay dividends, they do not burn but accumulate as debt to shareholders. When dividend payments are resumed, the amount of accumulated debt is paid first. To better understand the situation, let's consider it with an example.

Thus, cumulative dividend preferred shares are attractive to investors who can afford the lack of regular income. From this point of view, such investments can be extremely attractive in the long term, since, as a rule, they offer higher returns than bonds of the same company. However, the risks of such investments will be slightly higher, so the credit rating of bonds of the same issuer will be higher than the credit rating of its preferred shares.

preferred shares, the holders of which can receive dividends accumulated over a number of years when the corporation was unable to pay them due to poor financial condition.

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"cumulative shares" in books

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From the book Finance and Credit author Shevchuk Denis Alexandrovich

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From the book Let's profit from the crisis of capitalism... or Where to invest money correctly author Khotimsky Dmitry

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From the book Investing is Easy [A Guide to Effective Money Management] author

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From the book Retail Price Management author Lipsits Igor Vladimirovich

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From the book Postculture and the highest measure of humanitarian self-defense author Rozov Alexander Alexandrovich

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From the book Bibliological Dictionary author Men Alexander

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Purposes of release, rights of owners

Federal Law No. 208-FZ of December 26, 1995 “On Joint Stock Companies” (hereinafter referred to as the Law) provides for the issue of one or more types of preferred shares. Among them are cumulative and convertible preferred shares.

Based on the provisions of Art. 32 of the Law, cumulative preferred shares (English cumulative stocks, from Latin cumulatio - increase, strengthening) can be defined as preferred shares of a certain type, for which an unpaid or incompletely paid dividend, the amount of which is determined by the charter, accumulates for later payment and is not paid later than the deadline established by the charter.

Thus, cumulative shares are a method of replacing annual income with capital appreciation; They are not subject to income tax, but they are subject to capital gains tax.

For example, if during the issue of preferred shares it was established that the dividend on them is paid in the amount of 16% of the par value, but by decision of the general meeting of shareholders it is not paid this year, then in the next calendar period the dividend on the cumulative preferred share will be 32%.

The issue of such shares can attract investors with the opportunity to increase their income. If the owner of a preferred share of this type decides to sell it if dividends are not paid, he will be forced to sell it at a low market value. Whoever bought such a share has the opportunity to receive dividends for the entire period during which they were not paid.

When issuing convertible preferred shares, the possibility and conditions for converting (exchanging) such shares into ordinary shares or other types of preferred shares must be determined.

When characterizing convertible shares, it should be emphasized that conversion is possible:
■ in other securities;
■ shares with a higher par value into shares with a lower par value and vice versa;
■ shares with a large volume of rights into shares with a smaller volume of rights and vice versa;
■ shares into shares upon consolidation and splitting.

Foreign practice shows that the exchange of convertible shares should occur earlier than three years later. The conversion ratio shows how many other securities a preferred share is exchanged for. The conversion rate is set at the time such shares are issued and is generally higher than the current market price of the common stock at that time. Therefore, if during the established exchange period the current market price of common shares exceeds the conversion rate, the owner of a convertible preferred share has the opportunity to receive additional income by exchanging his share for common stock at the conversion rate and immediately selling it at a higher rate.

This option allows the issuer to set a lower dividend on convertible preferred shares than on other types of preferred shares. If the exchange period has expired and the owner of the convertible preferred share has not exchanged it for any other share, it is recognized as a direct (simple) preferred share.

What are the consequences of incomplete payment by a joint stock company of dividends on cumulative preferred shares? No later than the deadline specified in the charter, the general meeting must decide on the payment of accumulated dividends on cumulative shares. If such a decision is not made or a decision is made on incomplete payment, then Part 2, Clause 5, Art. 32 of the Law establishes a special consequence in the form of granting holders of cumulative preferred shares the right to vote on all issues on the agenda at all meetings starting from the one following the one that did not decide on full payment of dividends (similar consequences are established in Part 1, Clause 5, Article 32 of the Law for holders of other (non-cumulative) preferred shares.

This situation raises serious practical problems in situations where preferred shareholders, having received the right to vote on all matters, vote against payment of dividends to them, thereby possibly blocking the decision to pay them and extending their ability to vote at all meetings.

Unfortunately, the Law does not take into account this possibility (obviously based on the fact that preferred shareholders are only interested in receiving dividends). The problem can be solved either by voting (if there are enough votes of ordinary shareholders), or by introducing clause 5 of Art. 32 of the Law of additions, according to which their holders do not participate in voting on issues of payment of dividends on preferred shares.

CUMULATIVE PREFERRED SHARES

(cumulative preference share) A type of preferred stock (preference share), which gives its owner the right to receive dividends for previous years that were not paid for any reason. Companies are not required to pay dividends on preferred shares if earnings for a given period were insufficient. Cumulative preferred stock ensures that eventually, if the company returns to profitability in subsequent years, those outstanding dividends will be paid before common stock dividends begin to be paid.

Finance. Dictionary. 2nd ed. - M.: "INFRA-M", Publishing House "Ves Mir". Brian Butler, Brian Johnson, Graham Sidwell and others. General editor: Ph.D. Osadchaya I.M.. 2000 .

Cumulative preferred share

A cumulative preferred share is a share that guarantees dividends even if they are missed: the income lost by shareholders in a profitless year for the company is compensated by them in subsequent years.

In English: Cumulative preferred stock

See also: Preference shares

Finam Financial Dictionary.

See what “Cumulative preferred share” is in other dictionaries:

- (cumulative preference share) A share to the holder of which dividends, including any dividend arrears from previous years, must be paid before any dividends are paid to holders of common shares. Economy.… … Economic dictionary

- (cumulative preference share) A type of preferred shares (preference share), which gives its owner the right to receive dividends for previous years that were not paid for any reason. Companies are not required to pay dividends on... ... Dictionary of business terms

cumulative preference share- A type of preferred shares (preference share), which gives its owner the right to receive dividends for previous years that were not paid for any reason. Companies are not required to pay dividends on preference shares if... ...

- (from Lat. cumulatio increase) a share on which unpaid dividends are accumulated; a preferred share, the owner of which may be paid dividends accumulated over a number of years when the issuing company due to poor financial... ...

- (preference share) A share of a company that brings its owner a fixed percentage of income rather than fluctuating dividends. A preferred share is an intermediate form of security between an ordinary share (ordinary... ... Financial Dictionary

PREFERRED SHARES- a share whose owner has priority over the holder of ordinary shares in the distribution of dividends and property of the corporation in the event of its liquidation. P.a. give voting rights only if dividends on them have not been declared for a certain... Legal encyclopedia

preference share- A share of a company that provides its owner with a fixed percentage of income rather than fluctuating dividends. A preferred share is an intermediate form of security between an ordinary share and a bond... ... Technical Translator's Guide

- (see CUMULATIVE PREFERRED SHARES) ... Encyclopedic Dictionary of Economics and Law

Cumulative preferred share- (CUMULATIVE PREFERRED SHARE) A type of preferred share, the owners of which can receive dividends accumulated over a number of years during which the corporation did not pay them. In this case, dividends will be paid before holders receive dividends... ... Finance and stock exchange: dictionary of terms

- (non cumulative preference share) A preferred share that is not entitled to a dividend on the profits of a subsequent year to compensate for the failure to pay a dividend in a year with low profits. compare: cumulative preferred share... ... Financial Dictionary