Preferred Dividends

Preferred dividends are fixed dividend payments that a company must pay to holders of its preferred shares before any dividends are distributed to common shareholders. These dividends are often expressed as a percentage of the share’s par value. Preferred dividends are usually set at the time of issuance and provide a predictable income stream to preference shareholders. If a company cannot pay these dividends in a given year, cumulative preferred shares may require that unpaid dividends be paid before any future common dividends.

Example

A company issues preferred shares with a 5% dividend rate, meaning preferred shareholders receive a 5% payout on the par value of each share annually before any dividends are paid to common shareholders.