What is a notable feature of preferred stock dividends?

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Preferred stock dividends are characterized by their fixed nature, which means that they are predetermined and do not change over time, unlike common stock dividends that can vary based on the company’s performance and decisions made by the board of directors. This fixed rate gives investors a predictable stream of income, contributing to the appeal of preferred shares as a less risky investment compared to common equity.

Additionally, if a company encounters financial difficulties and cannot pay dividends, preferred dividends can often be deferred without the company facing immediate bankruptcy or legal consequences, although this may not always be ideal for investors expecting regular income. This deferment does not cancel the obligation of the company to eventually pay these dividends, which distinguishes preferred dividends from others where such flexibility may not be available.

The nature of preferred stock dividends as being fixed and deferrable makes them distinct from the fluctuating and discretionary nature of common stock dividends. Other options do not accurately capture these defining characteristics.

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