Cumulative & Callable Preferred — Q&A

Cumulative: 5% + 5% + 2% (shortfall) + 5% = 17% ($17). Straight: only 2026’s 5% ($5) — skipped dividends are never made up. ⚠️ 2025 shortfall is 2%, not full 5%.

Cumulative is more beneficial to investors (must eventually pay skipped dividends). Added investor benefits → lower expected return at issuance; issuers sell cumulative with lower dividend rates than straight.

May receive dividends above the stated rate in profitable years. Beneficial to stockholders → higher market prices, lower yields, issued with lower stated dividend rates than non-participating.

The issuer. Callable preferred lets the issuer redeem at par, ending dividend obligations. Issuers often call to refinance when rates fall. Callable stock gets higher dividend rates, trades at lower prices / higher yields.

Call protection = period the security cannot be called (e.g., 10 years). Call premium = amount above par required to call. Higher premium makes calling less attractive to the issuer. Even with both, callable is still less favorable than non-callable for stockholders.

Most commonly when interest rates fall — sell new lower-rate preferred, use proceeds to call older higher-rate shares (like refinancing a mortgage). Also to stop future dividend payments if they have funds.

Cumulative/Participating → benefits investor → lower rates at issuance, higher prices, lower yields. Straight/Callable → benefits issuer → higher rates at issuance, lower prices, higher yields.

No. BOD must approve payments but can skip/suspend if the company lacks cash. Skipping harms reputation but is not the same as bond default.