Cumulative Preference Shares are a type of preference shares where unpaid dividends are accumulated and must be paid before any dividend is given to equity shareholders.
Cumulative Preference Shares provide investors with a priority right to receive dividends, even if the company skips payments in a particular year. Any unpaid dividends are carried forward (accumulated) and must be cleared before equity shareholders receive dividends.
These shares are popular among investors seeking steady and relatively safer income compared to equity shares.
"A company does not pay dividends for 2 years. In the 3rd year, it must pay all pending dividends to cumulative preference shareholders before paying equity shareholders."