In financial terms, which is a benefit of preferred stock over common stock?

Preferred stock generally offers a higher dividend claim compared to common stock, which is a significant advantage for investors seeking income. When a company earns profits, preferred shareholders have the right to receive dividends before any distributions are made to common shareholders. This makes preferred stock an attractive option for income-focused investors since the dividend payments on preferred shares are often fixed and must be paid out before dividends can be issued to common shareholders.

This characteristic can enhance financial stability for preferred stockholders, especially in environments where consistent income is sought after. Furthermore, preferred stock may have a higher dividend yield than common stock, providing potentially better returns in terms of dividend income.

In contrast, the other options do not accurately capture the primary benefits of preferred stock over common stock. While the lack of voting rights, lower risk, and limited growth potential can describe characteristics of preferred stock, these attributes do not outweigh the advantage of having a higher claim to dividends, which is a key reason why investors might choose preferred shares over common shares.