Nov 4, 2009
Does Preferred Stock Get Dividends? When are Dividends payable?
Unfortunately the answer is it depends. This point is negotiated at the term sheet stage, and it can have significant economic effects. For example, an 8% cumulative dividend can turn a $10 million dollar investment into a $12.5 mm investment over three years and almost $15 mm over five years. In recent times, dividends have typically ranged around 6% per year. Some venture funds, particularly smaller funds may require dividends because they either pay or accrue dividends payable to their investors. Except in rare occasions, dividends accrue and are not paid currently. Dividends are then paid in the event of a liquidation or sale of the business or in the event of redemption. More often than not dividends are not either paid or converted into common stock upon voluntary or mandatory conversion.
