Cumulative preferred shares are a type of preferred stock issued by companies as a means of raising capital. They possess unique characteristics that make them distinct from other forms of preferred shares. The key feature of cumulative preferred shares is their ability to accumulate and carry forward unpaid dividends. In other words, if the issuing company misses a dividend payment to shareholders, the unpaid amount accrues and must be settled at a later date before common shareholders receive any dividends or before any assets are distributed to shareholders in case of liquidation.

This accumulation of unpaid dividends is a protective feature for investors who hold cumulative preferred shares. It ensures that they have a priority claim on dividends, and any missed payments must be made up before any profits are distributed to common shareholders. Non-cumulative preferred shares, on the other hand, do not offer this protection, and missed dividend payments do not have to be repaid.

Cumulative preferred shares are often favored by risk-averse investors who seek a more stable income stream. These shares provide a degree of predictability, as the company is obligated to settle any accumulated unpaid dividends before common shareholders receive any payouts. However, this predictability comes at a cost, as cumulative preferred shareholders typically receive a lower dividend rate compared to non-cumulative preferred shares.

Investors looking for a balance between stability and potential returns may find cumulative preferred shares to be a suitable investment choice. While they offer the benefit of dividend accumulation, they also come with a trade-off in terms of a potentially lower dividend rate. It's essential for investors to thoroughly understand the terms and conditions associated with cumulative preferred shares before making investment decisions, as these terms can vary among different issuers and securities.