what is noncumulative 
the term noncumulative describes a type of preferred stock that does not pay stockholders any unpaid or omitted dividends preferred stock shares are issued with pre established dividend rates which may either be stated as a dollar amount or as a percentage of the par value if the corporation chooses not to pay dividends in a given year investors forfeit the right to claim any of the unpaid dividends in the future understanding noncumulativenoncumulative describes a type of preferred stock that does not entitle investors to reap any missed dividends by contrast cumulative indicates a class of preferred stock that indeed entitles an investor to dividends that were missed the differences between common and preferred stockcompanies either issue common preferred stock or both preferred stock ranks ahead of common shares in getting something back if the company declares bankruptcy and sells off its assets more importantly preferred stocks are issued with stated dividend rates if a company is profitable preferred shareholders collect dividends before common stockholders on the flip side preferred stocks trade more like bonds and thus don t benefit much if the company experiences massive growth common shareholders reap those benefits common shareholders get voting rights while preferred share holders typically don t convertible bonds and preferred stockcorporate bonds may be issued with a conversion feature enabling those bonds to be converted into a specific number of shares of either common stock or preferred stock this conversion option lets bondholders convert a debt investment into stock for example let s assume an investor owns a 1 000 par amount corporate bond that can be converted into 20 shares of preferred stock let s further assume that the bond s market value is 1 050 while the stock is selling at 60 per share if the investor converted their holding into preferred stock they would own securities with a total market value of 1 200 compared with a 1 050 bond if the investor s goal is to earn income he may keep the bond and elect not to convert by contrast an investor who is interested in some growth may opt to convert his bond holdings into equities this investor will want to compare the rates offered on the bond and preferred stock most companies are reluctant to issue noncumulative stocks because shrewd investors are unlikely to buy this class of shares unless they re offered at significant discounts example of how a noncumulative preferred stock worksinvestors who own cumulative preferred shares are entitled to any missed or omitted dividends for example if abc company fails to pay the 1 10 annual dividend to its cumulative preferred stockholders those investors have the right to collect that income at some future date this essentially means cumulative preferred stockholders will receive all of their missed dividends before holders of common stock receive any dividends should the company begin paying dividends again if the preferred shares are noncumulative the shareholders never receive the missed dividend of 1 10 this is why cumulative preferred shares are more valuable than noncumulative preferred shares 