What is a key advantage of preferred stock over common stock?

Preferred stock offers a key advantage over common stock primarily through its preference in dividend payments. This means that preferred stockholders are entitled to receive dividends before any dividends are distributed to common stockholders. In situations where a company generates profits and decides to share them through dividends, preferred stockholders receive their payments first, providing a more reliable and prioritized income stream.

This characteristic makes preferred stock appealing to investors who are seeking stability and regular income, particularly in companies that consistently pay dividends. Additionally, in the event of liquidation, preferred stockholders typically have a higher claim on assets than common stockholders, further enhancing their investment security.

The other options, while they may have their own merits in different contexts, do not accurately reflect the primary advantage of preferred stock. For instance, preferred stock does not come with exclusive voting rights, which are generally reserved for common stockholders. It also does not guarantee profits or lower purchase prices inherently compared to common stock, as these factors are contingent upon the company’s performance and market conditions.