Which of the following best describes preferred stock?

Preferred stock is best described as a nonvoting equity that has priority over common stock in dividend payments. This means that holders of preferred stock typically receive dividends before common shareholders and have a higher claim on assets in the event of liquidation. The preference for dividends makes preferred stock attractive to investors seeking income, as they are generally paid fixed dividends that do not fluctuate as frequently as common stock dividends.

Option B inaccurately suggests that preferred stock always pays dividends regardless of company performance. While preferred shareholders often have a fixed dividend rate, companies can suspend these payments without the same consequences that would apply to common stock dividends, particularly in difficult financial circumstances.

Option C implies that preferred stock is similar to bonds but states that it cannot be converted into common stock. However, some preferred stocks come with conversion features that allow investors to exchange their preferred shares for common stock under specific conditions.

Option D incorrectly describes preferred stock as a common stock with a variable dividend rate, as preferred stocks typically have a fixed dividend rate rather than a variable one, distinguishing them from common stocks.

Thus, option A accurately encapsulates the essential features and characteristics of preferred stock within the context of corporate finance.