What is the primary benefit of preferred stock compared to common stock?

The primary benefit of preferred stock compared to common stock lies in the payment priority that preferred stockholders have. Specifically, in the event of liquidation or bankruptcy, preferred stockholders are entitled to receive payments before common stockholders. This means that if a corporation faces financial difficulties, preferred shareholders stand a better chance of recouping their investment, as they have a higher claim on the company’s assets.

Preferred stock often provides a fixed dividend that is paid out regularly, which can be appealing to investors seeking income. Unlike common stock, which may not pay dividends or may have variable dividends depending on the company’s performance and board decisions, preferred stock offers more financial predictability.

Common stockholders do not have the same payment priority; they are only compensated after all debts and obligations to creditors and preferred stockholders have been satisfied. This hierarchy reinforces the relative safety preferred stock provides, making it a more secure investment option in turbulent financial times.

The other choices provided do not accurately reflect the key advantages of preferred stock. Voting rights typically do not accompany preferred stock ownership, as that is generally reserved for common shareholders. The notion that preferred stock is paid after common stock is incorrect since, in fact, the opposite is true. Moreover, stating that preferred stock has no associated