Legal Definitions - cast-iron-pipe doctrine

The cast-iron-pipe doctrine, also known as the dividend-credit rule, is a principle that states that a company's reserve fund, which is created from unpaid dividends on preferred stock, must be used to pay subsequent dividends on preferred stock before any dividend payments are made on common stock.

For example, if a company has both preferred and common stock, and it has accumulated a reserve fund from unpaid dividends on preferred stock, it must use that fund to pay dividends to preferred stockholders before paying any dividends to common stockholders.

This doctrine is important because it ensures that preferred stockholders receive their dividends before common stockholders, which is fair since preferred stockholders have a higher priority in receiving dividends.