Which type of preferred stock ensures that unpaid dividends are accumulated until paid?

Cumulative preferred stock is the correct answer because it includes provisions that allow any unpaid dividends to accumulate over time until they are paid to shareholders. This type of stock provides an added layer of security for investors since it guarantees that if a company suspends dividend payments in any given period, those dividends will still be owed and must be paid before any dividends can be distributed to common stockholders.

For example, if a company is unable to pay a dividend in one year, cumulative preferred stock ensures that the dividend will be carried over to the future and paid at a later date, ensuring that shareholders ultimately receive what they are owed. This characteristic makes cumulative preferred stock particularly appealing to investors, as it reduces the risk of missed dividend payments compared to other types of preferred stock that do not have this accumulating feature.

In contrast, convertible preferred stock allows shareholders to convert their preferred shares into common stock but does not guarantee cumulative dividends. Participating preferred stock provides the right to received dividends above the stated rate under certain conditions but doesn’t accumulate unpaid dividends. Callable preferred stock offers the issuer the right to repurchase the stock at a specified price but lacks any provisions for accumulating unpaid dividends as well.