How Do You Spell CUMULATIVE PREFERENCE SHARE?
Pronunciation: [kjˈuːmjʊlətˌɪv pɹˈɛfɹəns ʃˈe͡ə] (IPA) 
Pronunciation: [kjˈuːmjʊlətˌɪv pɹˈɛfɹəns ʃˈe͡ə] (IPA)
A cumulative preference share refers to a type of financial instrument issued by a company seeking funding from investors. It represents ownership in the company and signifies a preference or priority in receiving dividend payments over other shareholders.
Unlike ordinary shares, cumulative preference shares entitle the holder to receive dividends before dividends are distributed to common shareholders. The key characteristic of cumulative preference shares is the "cumulative" nature of their dividend payments. If the company is unable to pay dividends in a particular year due to financial constraints, the unpaid dividends accumulate and must be paid to cumulative preference shareholders in subsequent years before any dividends are paid to ordinary shareholders.
Furthermore, cumulative preference shares provide a fixed dividend rate payable to the shareholders, usually expressed as a percentage of the par value or face value of the shares. These dividends are typically paid quarterly or semi-annually. The fixed dividend rate offers stability and predictability to investors seeking a more secure and steady income stream.
In the event of liquidation or bankruptcy, cumulative preference shareholders are also given preference over ordinary or common shareholders in terms of receiving their initial invested capital before any distribution to other stakeholders.
Overall, cumulative preference shares provide investors with a preferred right to receive regular dividend payments, often at a fixed rate, a priority in the repayment of capital, and a level of stability and security compared to common shares.
