What must a cumulative preferred stockholder receive before a common dividend is paid?

A cumulative preferred stockholder is entitled to receive all cumulative dividends in arrears before any dividends can be paid to common stockholders. This ensures that any missed dividends from previous periods must be paid to preferred shareholders first, as they have a higher claim on the company's assets and earnings compared to common shareholders.

Cumulative preferred stock is structured to protect investors against missed dividend payments. If a company cannot pay dividends in any given year, those unpaid dividends accumulate, and the company must resolve these arrears before distributing profits to common stockholders. This feature of cumulative preferred stock reinforces the preferential treatment given to preferred shareholders. Therefore, it is essential to fulfill their dividend entitlements fully before any common dividends are considered.