A preferred stock which must make up dividends in arrears is called what?

A preferred stock that must make up dividends in arrears is referred to as cumulative preferred stock. This type of preferred stock has a provision that allows any unpaid dividends to accumulate and must be paid to shareholders before any common stock dividends can be issued.

In the case of cumulative preferred stock, if a dividend is not declared in a particular year, the amount owing accumulates as a liability for the company. The company is obligated to pay these arrears before it can distribute any dividends to common stockholders. This feature offers additional security to investors, making cumulative preferred stock an attractive option, especially in times of financial uncertainty when companies might defer dividend payments.

Understanding this characteristic is crucial, as it highlights the financial hierarchy during dividend distribution, and reinforces the importance of cumulative features in protecting investors' interests in preferred stock investments. Other types of preferred stocks, like callable, convertible, and participating, do not share this specific characteristic of accumulating unpaid dividends.