Final answer:
Investors in preferred stock typically seek dividends and capital gains, with dividends providing a steady income and capital gains offering profit from an increase in stock value over time.
Step-by-step explanation:
Investors in preferred stock are motivated by two primary objectives: dividends and capital gains. Dividends serve as direct returns on investment, representing a portion of the company's profits distributed to shareholders. Preferred stock is known for offering higher and more consistent dividend payments compared to common stock. These dividends are typically fixed and stable, providing investors with a reliable income stream. The preference in dividend payments is a key feature that attracts income-focused investors to preferred stock.
In addition to dividends, investors in preferred stock also seek capital gains. Capital gains refer to the appreciation in the value of the stock over time. Investors may purchase preferred stock at a specific price and anticipate selling it at a higher price in the future, realizing a profit from the difference. While capital gains might not be as significant a focus as dividends for preferred stockholders, the potential for stock price appreciation adds an additional layer of profitability to the investment.
The combination of regular and higher dividend payments, along with the potential for capital gains, makes preferred stock an attractive option for investors seeking income and growth in their investment portfolios. The dual appeal of income stability and the opportunity for appreciation positions preferred stock as a versatile investment choice for those with a balanced approach to risk and return.