For example, a company that missed two years worth
of preferred share dividends would have to pay all the missed payments before it paid out anything to the common shareholders.
Earnings growth primarily resulted from higher net interest income and
lower preferred share dividends, partly offset by lower non-interest income, increased non-interest expenses and a marginally higher provision for credit losses.
However, he noted that
since preferred share dividends are treated more favourably than interest income from a tax perspective, these securities pay 8.625 per cent on an interest - equivalent basis.
These positive earnings drivers were more than offset by the combined impact of several factors, including increased energy - related provisions for credit losses, a 17 basis point decline in net interest margin, moderate growth of non-interest expenses, the addition of acquisition - related contingent consideration fair value changes reflecting performance within CWB Maxium Financial (CWB Maxium),
higher preferred share dividends, and the 20 % increase to CWB's income tax rate in Alberta.
Second,
preferred share dividends are more reliable than the dividends paid on a company's common shares — but less reliable than the interest paid on its bonds.
This means that
preferred share dividends must be paid prior to any common dividends being paid.