Noncumulative
Candlefocus EditorNoncumulative stock does not guarantee that missed dividends will be paid; rather, the investor takes on the risks associated with the company not paying said dividends. This means that investors should be cautious when considering this type of security as it may not provide beneficial returns in the event of a default or omission on the part of the issuer. Furthermore, the noncumulative stock has more limited liquidity than cumulative stock due to its lack of post-default payment rights and therefore, fewer investors may be interested in the noncumulative stock.
Many companies rely on issuing noncumulative stock in times of fiscal strain in order to raise capital. They are often used by established companies as a substitute for issuing additional debt or selling equity. Due to the predetermined dividend that comes with noncumulative stock, these securities can be a useful tool for raising capital, especially for companies that are not able to acquire debt financing. Noncumulative stock is also considered to be a preferred stock, and therefore is somewhat more attractive when compared to common stock.
Overall, the noncumulative stock is a security with fixed dividends and no guarantee of payment for missed dividends. This type of stock is typically issued during times of financial difficulty as a means of raising funds, however, it carries certain risks in terms of payment of dividends and liquidity. For this reason, investors should be sure to thoroughly analyze potential investments in noncumulative stock prior to purchase to ensure the best possible outcomes.