What is a characteristic of preferred stock?

Preferred stock is a type of investment that typically offers fixed dividends to its holders. This means that holders of preferred stock receive their dividends at a predetermined rate, which is generally set when the stock is issued. This characteristic makes preferred stock similar to debt instruments, giving investors a steady stream of income while often having priority over common stockholders in the event of a liquidation of the issuing company.

The fixed nature of dividends is a significant aspect that attracts certain investors, as it provides a level of predictability regarding income. This contrasts with common stock, which may or may not pay dividends, and if paid, the amount can vary based on the company's profitability and decision by the board of directors.

While preferred stock does not typically confer voting rights (which is a feature of common stock), and while dividends do not vary like those of common stock, it does allow for the possibility of selling preferred shares on the market rather than being held until maturity, making it liquid. The guarantee of fixed dividends is a key characteristic that benefits conservative investors looking for less volatility and more income stability.