How are dividends for cumulative preferred stock characterized?

Cumulative preferred stock is a type of preferred equity that carries a specific feature regarding dividend payments. When a company issues cumulative preferred stock, it agrees to pay a fixed dividend. However, if the company is unable to pay the dividend in any given period, those unpaid dividends do not simply vanish; instead, they accumulate. This means that the company has an obligation to eventually pay those missed dividends before any dividends can be paid to common stockholders.

Thus, the characterization of dividends for cumulative preferred stock includes the ability for unpaid dividends to accumulate, allowing shareholders to receive missed payments in future periods. This ensures that investors in cumulative preferred stock have some protection against the risks associated with fluctuating company profits or financial distress. Consequently, the correct answer, which states that dividends may accrue if unpaid, accurately reflects this important aspect of cumulative preferred stock.