What is an advantage of preferred stock compared to common stock?

Preferred stock has distinct characteristics that differentiate it from common stock, particularly in terms of dividend distribution. One significant advantage of preferred stock is that it typically provides shareholders with a fixed dividend. This means that preferred shareholders receive dividends at predetermined intervals and amounts, making their investment more stable compared to common stock, which often has variable dividends that can change based on the company's profitability and decisions made by the board of directors.

This fixed dividend characteristic makes preferred stock attractive to investors who seek predictable income, particularly in times of economic uncertainty. In contrast, common stock may not pay dividends consistently, as they are dependent on the company's performance and management decisions.

Moreover, preferred shareholders usually have a higher claim on assets in the event of liquidation than common shareholders, adding to its appeal as a more secure investment. Therefore, the fixed dividend is a key reason why preferred stock is often favored by those looking for more reliability in their investment returns.