ACCUMULATED DIVIDEND Meaning and
Definition
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Accumulated dividend refers to the unpaid and outstanding dividends that have accumulated on a company's preferred stock or cumulative preferred shares.
When a company declares dividends for its preferred shareholders, it may happen that the company is unable to pay the dividend amount at that time, usually due to financial constraints. The unpaid dividend amount then accumulates and remains outstanding, resulting in accumulated dividends.
Accumulated dividends are mostly associated with cumulative preferred shares, as holders of these shares have the right to receive any unpaid dividends in the future, once the company has the financial capacity to make the payment. This means that accumulated dividends function as a sort of debt owed by the company to its preferred shareholders.
It is important to note that accumulated dividends do not usually accrue interest and do not represent a legal obligation for the company to pay them. They are often considered a liability on the company's balance sheet, as they indicate an accrued but unpaid dividend amount owed to the shareholders.
Shareholders who hold cumulative preferred shares have the advantage of receiving the accumulated dividends before any dividends can be paid to common shareholders if the company decides to restore its dividend payments. Accumulated dividends may be paid at a later date when the company has sufficient funds or if the preferred shares are redeemed.
Etymology of ACCUMULATED DIVIDEND
The etymology of the term "accumulated dividend" starts with the individual words that make up the phrase:
1. Accumulated: The word "accumulate" is derived from the Latin word "accumulatus", which means "to heap up or collect". This Latin word is a combination of "ad" (meaning "to" or "towards") and "cumulare" (meaning "to heap" or "pile up").
2. Dividend: The term "dividend" comes from the Latin word "dividendum", which is the gerund form of "dividere" meaning "to divide" or "share out".
When combined, "accumulated dividend" refers to the sum of dividends that have been accumulated or collected over a period of time. It typically represents the unpaid dividends that have not been distributed to shareholders and have instead been retained by the company.
