Final answer:
The statement is false, as preferred stock is not debt security but has features of both equity and debt. Dividends of preferred stock are not guaranteed as debt interest payments are, and preferred shareholders have lower priority than bondholders. Yet, its fixed dividend payments and credit ratings bear some resemblance to bonds.
Step-by-step explanation:
The assertion that preferred stock is considered debt security because of its fixed dividend payments and credit ratings like bonds is false. While preferred stock does have fixed dividend payments, it shares characteristics with both equity and debt instruments. Unlike debt securities, which have mandatory interest payments, dividends on preferred stock can generally be suspended by the issuing company under financial distress without causing bankruptcy. Moreover, preferred shareholders are subordinate to bondholders in the event of liquidation. However, preferred stocks often have characteristics such as dividend priority over common stocks and fixed dividend rates, which make them similar to bonds.
The payment of these dividends is typically more predictable than common stock dividends, but it's not a contractual obligation like bond interest payments. Credit ratings may be assigned to preferred stock, but they are not interpreted the same way as ratings for bonds.
Investors consider multiple factors such as capital gains, diversification, and potential dividends when evaluating the value of a stock for investment. The true valuation comes from the present discounted value of these expected future benefits, including dividends and potential capital gains, rather than a strict classification as debt.