In terms of dividend allocation, when do companies typically pay cumulative dividends?

Cumulative dividends refer to dividends that accrue on preferred shares in case they are not paid in a given period. If the company misses a dividend payment, it is obligated to pay those accumulated dividends to its preferred shareholders before any dividends can be distributed to common shareholders.

The correct option pertains to the actions of the company's board of directors. The board must resolve to declare dividends, including cumulative dividends. This declaration typically occurs during a formal meeting, where the board assesses the company's profitability, cash flow, and overall financial health before making decisions regarding dividend payments. Thus, even if there are accrued dividends from previous periods, they become payable only once the board explicitly resolves to announce and declare those dividends.

In contrast, the other options do not capture the necessary requirement of the board's resolution. Immediate payment after profits are announced or during favorable financial years does not guarantee that cumulative dividends will be paid if the board has not made a formal declaration. Likewise, suggesting that cumulative dividends are only paid after all previous dividends fails to recognize that the obligation exists regardless of other dividends being declared or paid; cumulative dividends are meant to ensure that preferential shareholders receive their due payments.