What is a key characteristic of 'preferred shares'?

Preferred shares are traditionally associated with a fixed dividend rate, which indicates that they typically offer shareholders a specified and consistent return on their investment. This feature distinguishes preferred shares from common shares, which may have variable dividends that can fluctuate based on the company’s earnings.

The fixed dividend rate makes preferred shares appealing for investors seeking stable income, as these dividends are often prioritized over common stock dividends during distributions. Preferred shareholders usually receive their dividends before common shareholders receive any dividend payments, providing an added layer of financial security.

In contrast, while preferred shares generally do not offer voting rights, they do have certain claims on assets, especially in liquidation scenarios, making them potentially more favorable than common shares in specific contexts. This preference in dividend payment priority contributes significantly to their appeal among risk-averse investors and makes the characteristic of having a fixed dividend rate a defining aspect of preferred shares.