Legal Definitions - accumulative dividend

An accumulative dividend is a type of dividend that grows from year to year when not paid. It is usually on preferred shares, and it must be paid in full before common shareholders may receive any dividend. If the corporation does not pay a dividend in a particular year or period, it is carried over to the next year or period and must be paid before the common shareholders receive any payment.

For example, if a company declares a $1 accumulative dividend on preferred shares and does not pay it in the first year, the dividend will accumulate to $2 in the second year. The company must pay the $2 dividend before any common shareholders receive a dividend.

Accumulative dividends are different from noncumulative dividends, which do not accrue for the benefit of a preferred shareholder if there is a passed dividend in a particular year or period.