Cumulative Preferred Stock is a class of preferred shares that carries a dividend feature specifying that if the issuing company is unable to pay a dividend in any given period, the unpaid dividends accumulate as arrears. These arrears must be settled in full before homeowners or other shareholders, such as those holding common stock, can receive any dividends.

For example, if a corporation issues cumulative preferred stock with an annual dividend of $5 per share but is unable to pay dividends for two consecutive years due to financial constraints, the holders of this stock will have accumulated dividends of $10 per share. Before the company declares and distributes dividends to common stockholders in any future period, the $10 per share owed to cumulative preferred shareholders needs to be paid in full.

This type of preferred stock is beneficial for investors seeking consistent returns, even during periods when a company might struggle financially. The inclusion of arrears ensures that dividends on cumulative preferred shares are treated as an obligation for the issuing company. Terms like "arrears," "dividend rights," and "preferred stockholders" are associated with this financial instrument.