Preferred stock is compensated for not having the same ownership privileges as common stock by offering a fixed dividend stream supported by a binding contractual obligation.
Preferred stock DOES have a fixed dividend stream, but does not carry a binding contractual obligation, as does debt.

Question

Quizplus · Accepted Answer

Preferred stock does have a fixed dividend stream, but it does not carry a binding contractual obligation, as debt does. Preferred shareholders are not legally entitled to receive their dividends if the company cannot afford to pay them, unlike bondholders who have a contract that obligates the company to pay interest and principal.

Preferred Stock Is Compensated for Not Having the Same Ownership