What distinguishes preferred shares from common shares?

Preferred shares are characterized by certain features that differentiate them from common shares, one of which is the nature of their dividends. Preferred shares typically come with fixed dividends, which are paid out to shareholders before any dividends are issued to common shareholders. This means that in the event of a company's profitability and dividend declaration, the holders of preferred shares will receive their predetermined dividends first. This fixed nature of dividends provides a level of income certainty to investors, which is an appealing aspect of preferred shares compared to the typically fluctuating dividends associated with common shares.

Furthermore, in the event of company liquidation, preferred shareholders also have a priority claim over common shareholders regarding asset distribution, adding to the appeal of investing in preferred shares for those seeking stability. Overall, the fixed dividends and priority in payment structure of preferred shares make them a distinct category of equity investment as compared to common shares.