What does preferred stock guarantee compared to common stock?

Preferred stock offers a fixed dividend payment, which means that shareholders of preferred stock are entitled to receive a specified amount of dividends before any dividends are paid to common stockholders. This regular income stream can be particularly attractive to investors seeking stability and predictability in their investment returns.

This guaranteed payment is one of the key distinctions between preferred and common stock. Common stock does not guarantee dividends; instead, dividend payments can fluctuate based on the company's profitability and decisions made by its board of directors. Preferred shares also generally have priority over common shares when it comes to asset distribution in the event of liquidation, further enhancing their appeal to investors looking for security in their investments.

In contrast, common stock holders often have voting rights which allow them to influence company policies and decisions, but they do not enjoy the same level of dividend security. Therefore, the fixed dividend payment feature of preferred stock is what fundamentally differentiates it from common stock, making it a preferred choice for income-focused investors.