ALTERATIONS OF ACCRUED DIVIDENDS: I

Authors

Arno C. Becht, Washington University, Saint Louis, MissouriFollow

Abstract

When a preferred stock has cumulative dividends and the dividend period passes without payment, the dividend is said to "accrue." The meaning of the term "accrued" has been the subject of much inquiry. Since a stockholder cannot sue for an accrued dividend for the same reasons that he cannot sue for any other undeclared dividend, the term clearly does not mean what it does in the law of debt, i.e., that a cause of action has arisen. It means only that no dividend can be paid on the common stock until that dividend has been paid on the preferred stock. Thus, if a preferred stock provides that a 7% cumulative dividend shall accrue on January 2 of each year, and if three years pass without payment, on the dividend date in the fourth year every share of preferred is entitled to $28 instead of $7 before any payment can be made to the common stock. Hence, accrued dividends are a measure of the preferred stock's priority over the common stock, and nothing more. A preferred stock with dividends accumulated, is only a stock that has an extraordinarily high rate of preferred dividend due it before payments can be made to the common stock. As a matter of legal analysis, then, it seems that an accrued dividend is not different from a dividend rate, and that an amendment changing or removing it is not different in kind from one reducing a dividend rate. If this be true, the problems presented by accrued dividends are not different legally from those, say, presented by amendment of the dividend rate.

Recommended Citation

Arno C. Becht, ALTERATIONS OF ACCRUED DIVIDENDS: I, 49 Mich. L. Rev. 363 (1951).
Available at: https://repository.law.umich.edu/mlr/vol49/iss3/3