What advantage does preferred stock typically offer to its holders?

Preferred stock typically offers fixed dividends that must be paid before any dividends are distributed to common stockholders. This characteristic is advantageous because it provides a more predictable income stream for preferred stockholders, as they receive dividends at a set rate, which is often higher than what common stockholders receive, if any. The fixed nature of these dividends also means that preferred stockholders have a form of protection; if a company faces financial difficulties, it must pay the preferred dividends before any distributions can be made to common stockholders.

This preference in dividend payment often makes preferred stock an appealing investment, particularly for those seeking steady income, such as retirees or those with fixed-income needs. The fixed dividends create a level of financial security for preferred shareholders, in contrast to common shareholders who may receive variable and less certain dividends. Therefore, this attribute highlights the unique position of preferred stock within a company's capital structure and its appeal to investors looking for stability and predictability in their investment returns.