Preferred Dividends

Category

Income Statement

Units

Currency

US-GAAP elements

PreferredStockDividendsIncomeStatementImpactDividendsPreferredStock

Reference

ASC 260, Earnings Per Share; ASC 505, Equity

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Preferred dividends are the dividends a company owes or pays to holders of its preferred stock for a period. On the income statement they are subtracted from net income to arrive at net income available to common shareholders, because preferred holders have a claim on earnings that ranks ahead of common stock.

Preferred dividends are a distribution of profit to equity holders, not an operating or financing expense, so they do not reduce net income itself. They reduce only the earnings attributed to common shareholders.

Companies tag the deduction used for earnings per share in XBRL as PreferredStockDividendsIncomeStatementImpact. The amount declared during the period, whether paid in cash, in additional shares, or in kind, is tagged DividendsPreferredStock and appears in the statement of stockholders' equity. The two can differ. Under ASC 260, dividends on cumulative preferred stock are subtracted in computing earnings per share whether or not they have been declared, since unpaid amounts accumulate as arrears that must be settled before common shareholders receive dividends. For non-cumulative preferred, only declared dividends are subtracted.

Classification of the security matters. Preferred stock that must be redeemed on a fixed date or on an event certain to occur is classified as a liability under ASC 480, and payments on it are reported as interest expense, not as preferred dividends. Preferred stock redeemable at the holder's option is usually shown in temporary equity between liabilities and stockholders' equity, and related accretion can be an additional deduction from common earnings.

Preferred dividends are most significant for banks, insurers, utilities, and real estate investment trusts, which often use preferred stock as part of their capital, and for companies that raised rescue or growth capital through convertible preferred. Analysts treat preferred stock as a fixed claim similar to debt when calculating enterprise value, and compare preferred dividends with net income to judge how much of a company's profit is committed before common shareholders see any of it.