Question

Preferred stock generally doesn't have voting rights and _________ preference over dividends?

1) equal
2) higher
3) lower
4) no

Answer 1

Preferred stock usually does not provide voting rights but offers a higher preference over dividends, meaning dividends must be paid to preferred shareholders before common shareholders.

Step-by-step explanation:

Preferred stock generally doesn't have voting rights and has higher preference over dividends. This means that preferred shareholders are entitled to receive dividend payments before common shareholders are paid any dividends. This higher claim on dividends is one of the main advantages of holding preferred shares. It's essential for potential investors to understand that while preferred shares often come with this preferential treatment regarding dividends, they usually do not come with the voting rights that common shareholders enjoy. This trade-off is important to consider when evaluating investment options in a company's equity.