What advantage does preferred stock have over common stock?

What advantage does preferred stock have over common stock?

• A. Gives shareholders voting rights in company decisions
• B. Entitles holders to fixed dividends and priority in liquidation
• C. Allows holders to convert shares into common stock at any time
• D. Is always traded at a premium in the stock market

Answer: (B)

Preferred stock offers distinct advantages over common stock, particularly regarding financial benefits and stability. One of the primary advantages is that preferred stockholders are entitled to receive fixed dividends. This means that preferred shareholders receive a set dividend payment, typically before any dividends are paid to common shareholders. This fixed income can be particularly appealing to investors seeking reliable income streams. Furthermore, in the event of a company's liquidation, preferred stockholders have priority over common stockholders in recovering their investments. This hierarchy provides an added layer of security, as preferred shareholders are more likely to recoup some of their investment in the unfortunate event of the company's financial downfall. In contrast, common stockholders may receive dividends that can be variable and are not guaranteed. Additionally, they stand last in line during liquidation processes, often resulting in a total loss if the company's assets are insufficient to cover all obligations. This priority in dividend payments and liquidation significantly enhances the attractiveness of preferred stock from an investment perspective.

Preferred stock offers distinct advantages over common stock, particularly regarding financial benefits and stability. One of the primary advantages is that preferred stockholders are entitled to receive fixed dividends. This means that preferred shareholders receive a set dividend payment, typically before any dividends are paid to common shareholders. This fixed income can be particularly appealing to investors seeking reliable income streams.

Furthermore, in the event of a company's liquidation, preferred stockholders have priority over common stockholders in recovering their investments. This hierarchy provides an added layer of security, as preferred shareholders are more likely to recoup some of their investment in the unfortunate event of the company's financial downfall.

In contrast, common stockholders may receive dividends that can be variable and are not guaranteed. Additionally, they stand last in line during liquidation processes, often resulting in a total loss if the company's assets are insufficient to cover all obligations. This priority in dividend payments and liquidation significantly enhances the attractiveness of preferred stock from an investment perspective.