How is preferred stock characterized?

Preferred stock is characterized primarily by its claim to profits before common stockholders. This means that in terms of dividend payments and distributions of assets during liquidation, preferred stockholders receive their payments before common stockholders. This preferential treatment makes preferred stock a hybrid security—it includes features of both equity and debt.

In contrast to common stock, which generally comes with voting rights, preferred stock typically does not offer voting rights to its shareholders. Also, preferred stock usually provides a fixed dividend, which must be paid out before any dividends can be distributed to common stockholders. If a company runs into financial difficulties, dividend payments to preferred shareholders are prioritized. This makes option D a defining characteristic of preferred stock as it highlights its preferential position in the hierarchy of claims on a company's assets and profits.