What describes callable preferred stock?

Callable preferred stock is defined by the feature that allows the issuing company to redeem the shares at a predetermined price after a specific date. This characteristic means that the company can repurchase the shares, typically at par value, which provides flexibility to the issuer to manage their capital structure and interest expenses.

When an issue is callable, it might benefit the issuer in a declining interest rate environment, allowing them to refinance by paying off the preferred stock and potentially reissuing new securities at a lower cost. Investors must be aware of this feature because if the stock is called, they may miss out on future dividend payments that were expected.

The other choices depict different types of stock characteristics. For instance, dividends that vary refer more broadly to non-fixed income securities, which is not applicable to callable preferred stock. Conversion to common stock is a feature typically associated with convertible preferred stock, not callable. Finally, participation in higher dividends pertains to participating preferred stock, which is distinct from the nature of callability.

Thus, the defining aspect of callable preferred stock is its redeemable nature by the issuer at a set price, which provides important implications for both the issuer and the investor.