Preferred Dividends

Definition: Preferred Dividends are distributions paid to preferred stockholders before any dividends can be paid to common stockholders. They are typically a …

Preferred Dividends are distributions paid to preferred stockholders before any dividends can be paid to common stockholders. They are typically a fixed amount or fixed percentage of par value and may be cumulative (unpaid amounts accumulate as 'dividends in arrears' that must be paid in full before any common dividend) or non-cumulative. Preferred dividends are NOT an expense — they reduce retained earnings rather than net income — but they ARE subtracted from Net Income when computing earnings available to common stockholders for Basic Earnings Per Share: EPS = (Net Income − Preferred Dividends) / Weighted Average Common Shares Outstanding. For cumulative preferred stock, the current period's dividend is subtracted whether or not it was actually declared. Required by ASC 260 and IAS 33 for EPS calculations.