Analyzing Benefits of Cumulative vs Non-Cumulative Preferred Shares

Preferred shares are a segment of equity investments that exhibit characteristics distinct from common shares. They often come with fixed dividend payments and have higher claim on assets than common shares in the event of liquidation. However, not all preferred shares are created equal. Some come with features like convertibility into common shares, callable provisions, or cumulative dividends. In light of this information, consider the following scenario:

A company issues two types of preferred shares: Type A, which offers a fixed annual dividend of $5 per share but is non-cumulative, and Type B, which provides a fixed annual dividend of $4 per share that is cumulative. In the first year, the company faces financial difficulties and pays no dividends on either type. In the second year, the company recovers and pays a dividend of $8 per share for the preferred shares. Based on this scenario, assess which type of preferred share will benefit the investor more in the second year.