Dividends

Recent decisions of the New Jersey Court of Errors and Appeals--handed down in Day and Moran v. The United States Cast Iron Pipe and Foundry Co. and frequently referred to in the current financial and legal publications-- indicate-that the rights, in dollars and cents, of non-cumulative preferred stockholders have not been as rigidly insisted upon as they might have been.

Preferred stock, as everybody knows, is almost always designated as either cumulative or non-cumulative. If cumulative, its dividends are not payable if profits are not earned; but when profits are earned, its unpaid dividends, past or present, are a first charge against such profits and must be paid before the common stock-holders receive anything. If preferred stock is non-cumulative--in the opinion up to now of both lawyers and the public--a passed dividend is lost.

But, according to these decisions, "cumulative and non-cumulative preferred stocks differ only in that cumulative stocks are entitled to dividends, whether earned or not, in any particular year." Preferred stockholders, therefore, contrary to what has been hitherto believed, do not lose a dividend which has been earned but not paid when earned.

It should, however, be pointed out that these decisions must not be taken as definite in their application to the rights of preferred stockholders under the charter and by-laws of all companies and the statutes of all states. In this connection, it is interesting to note that already a suit has been commenced by, among others, the trustees of the Langhorne estate in Richmond, Va., to enjoin the directors of the Southern Railway from paying further dividends on the common stock of that company until preferred stockholders have been paid all dividends in arrears.