How does preferred stock differ from common stock?

Preferred stock is primarily characterized by its provision of a specified dividend, which is one of the key differences from common stock. Holders of preferred stock receive dividends at a fixed rate before any dividends can be distributed to common stockholders. This fixed dividend can provide a more stable income stream for investors, making preferred stock less risky compared to common stock, which can have variable dividends that are not guaranteed.

Common stockholders, on the other hand, often have the right to vote on company matters and can influence board elections and other significant corporate decisions. Preferential treatment in dividends is a major reason why investors may choose preferred stock, particularly in terms of steady income during uncertain economic periods. Thus, the nature of dividends associated with preferred stock directly signifies its distinct position and benefits compared to common stock.