If you or someone you love has been the victim of cumulative preferred shares of stock fraud, Erez Law is here to help. Cumulative stock is a class of preferred stock that gives shareholders the chance to accumulate dividends in arrears or dividends that are missed and not paid out by the company. Cumulative preferred stock provides a higher degree of safety over other types of preferred stock because these shareholders are paid first before other preferred stock shareholders and common stock shareholders.
Contact a cumulative preferred shares of stock fraud lawyer at Erez Law today to learn more about how our experienced lawyers can help you with your cumulative preferred stock fraud case. We are ready to listen to you and investigate what happened. Call us at (888) 840-1571, chat with us live on our site, or fill out a contact form to schedule a confidential consultation today.
How Dividends Work
Dividends are paid to shareholders as a benefit when the company performs well during any quarter. However, dividends are declared (a common term that means dividends will be paid to investors) only when the company decides to do so. Companies are not technically required to pay out dividends. Either the Board of Directors or management team of the company decides whether they pay out dividends, usually depending on whether the company showed stellar performances or high earnings.
Dividend schedules vary depending on the company and can be anywhere from monthly to quarterly. The most common schedule is for dividends to be paid quarterly.
The Background on Cumulative Preferred Stock
Preferred stock is a type of stock that allows shareholders to be paid a dividend when they are declared by the company. When companies do pay dividends, preferred stock shareholders are the first class of shareholders to receive the dividend. While preferred stock shareholders are the first to be paid, they are not guaranteed to be paid a dividend when one is not declared. This class of stock also has no voting rights or privileges. When dividends are not paid, preferred stock shareholders do not receive any additional payments or special treatment. However, cumulative preferred stock shareholders have extra incentives when you look at the order in which shareholders are paid and how they are treated when dividends are missed.
Cumulative preferred stock shareholders are treated differently because they have the right to receive a dividend whether one is declared or not. The guaranteed dividend for these shareholders means that when dividends are in arrears (this is a term that means when dividends are not paid out by the company), cumulative preferred stock shareholders continue to accumulate until the next time a dividend is paid out to shareholders. Because of the dividends being in arrears, cumulative preferred stock shareholders are paid first, and they are paid the amount of whatever the current dividend is plus the amounts of any missed dividends. These amounts must be paid before anything is paid to the other shareholders.
The return of a cumulative preferred stock is presented as a percentage. The raw mathematical return of the calculation is used with the following formula: ((Current Price of Security) – (Original Price of Security)) / (Original Price of Security).
Why Companies Issue Cumulative Preferred Stock
There are a few reasons why companies will issue cumulative preferred stock. These reasons include the following:
- Investors have less risk involved than with normal stocks
- Investors are willing to pay more for the stock because of the guaranteed dividend and lowered risk
- With the reduced risk, there’s also the ability for a lower dividend payout compared to the dividend amount for non-cumulative shares
- More protection from risk means that shareholders are more likely to have less concern over not having voting rights
On the other hand, there are a few reasons why companies decide not to issue cumulative preferred stock. Those reasons can include the following:
- Additional financing options to raise capital for the company
- Paying out cumulative dividends to shareholders translates to less cash on hand for the company to pay other required expenses
The requirement that the company pay cumulative shareholders all accumulate dividend may reduce the amounts paid to common stock shareholders and delay the timing of payments
Cumulative Preferred Stock Fraud
Shareholders purchase cumulative preferred stock from licensed brokers, and there are a few things to keep in mind if you are thinking of purchasing cumulative preferred stock. Financial advisors bear the responsibility of providing potential investors with all of the risk factors involved with investing in a stock, whether or not it’s a cumulative preferred stock.
If you think that a broker has intentionally misled you and you’ve been a victim of cumulative stock fraud, we have a team of lawyers at Erez Law who are well versed in securities litigation who can help you. Our experienced legal team is extremely knowledgeable about fraud as it relates to cumulative preferred stock, and we will do everything in our power to help you recover what you lost due to fraud.
If you think you may have been the victim of fraud surrounding cumulative preferred stock and you were not paid your missed dividends, call Erez Law at (888) 840-1571 to discuss how we can help you with your cumulative preferred stock case.