Noncumulative Shares Explained: 2025 Guide for Australian Investors

When it comes to picking shares in 2025, many Australian investors are taking a closer look at the fine print—especially around how dividends are paid. One term that often crops up is noncumulative. But what does it actually mean, and why is it suddenly so important in today’s market?

What Are Noncumulative Shares?

Noncumulative shares are a type of preference share where missed dividend payments are not carried forward. In other words, if a company decides not to pay a dividend one year, investors don’t get to claim it in the next. This is in contrast to cumulative preference shares, where unpaid dividends accrue and must be paid before any dividends can be paid to ordinary shareholders.

• No catch-up: If you miss a dividend, it’s gone for good.
• Higher risk, sometimes higher reward: Companies may offer higher yields to compensate for the added risk.
• Popular with certain sectors: Banks and insurers often issue noncumulative shares to maintain capital flexibility.

For example, if XYZ Bank issues noncumulative preference shares and skips the 2025 dividend due to regulatory capital requirements, investors lose that year’s payment—and the slate is wiped clean for 2026.

2025 Policy Updates and Regulatory Shifts

Australian regulators and the ASX have made several notable updates affecting noncumulative shares in 2025. In the wake of ongoing global economic volatility and increased scrutiny from APRA (Australian Prudential Regulation Authority), financial institutions are leaning more heavily on noncumulative issues to bolster their capital positions.

• APRA’s 2025 capital adequacy standards now explicitly encourage banks to issue noncumulative shares to meet Tier 1 capital requirements, since these shares give institutions more control over dividend outflows in tough times.
• ASX Listing Rule 6.3 (updated in March 2025) requires clearer disclosure of whether preference shares are cumulative or noncumulative, aiming to reduce investor confusion.
• Several high-profile bank hybrids issued in early 2025, such as Westpac’s Capital Notes 9, are structured as noncumulative to align with these regulatory trends.

This regulatory environment means investors must be vigilant about the terms of any new share or hybrid security issue. Missed dividends on noncumulative shares can’t be expected back—making it crucial to weigh the risk against the promised yield.

How Noncumulative Shares Affect Your Portfolio

The noncumulative feature can impact both income and risk profiles in a portfolio. Here’s what to consider:

• Income predictability: Noncumulative shares can be less reliable than cumulative ones, particularly if the issuer faces financial pressure or tighter regulatory controls.
• Market pricing: Because of the greater risk, noncumulative shares may trade at a discount compared to similar cumulative securities, or offer a higher headline yield to attract buyers.
• Tax treatment: Dividends from noncumulative shares can still carry franking credits, but missing a payment means missing out on those credits for that period.

For example, in 2025, several retail investors in NAB’s noncumulative hybrids missed out on expected payouts when APRA advised a temporary dividend halt. While this helped strengthen the bank’s capital, it left investors without compensation for the missed income.

Weighing the Pros and Cons

Noncumulative shares aren’t inherently bad—they simply suit certain investor profiles better than others. Consider these factors:

• Pros: Potentially higher yields, regulatory alignment for issuers, can diversify portfolio risk.
• Cons: Less income certainty, greater reliance on issuer’s ongoing profitability, no recovery of missed dividends.

If you’re investing for regular income, always check whether a share is noncumulative and review the issuer’s dividend track record and capital position. For those comfortable with a bit more uncertainty in exchange for yield, noncumulative shares can play a valuable role—but only as part of a well-diversified portfolio.