Final answer:
Collateral preferred stock is the type of stock that assures dividend payments even if the issuing corporation does not make a profit, providing income security to investors. It is distinctly different from common stock, which has no guaranteed dividends. Governance regarding dividend issuance is typically the responsibility of a firm's board of directors.
Step-by-step explanation:
The type of stock that guarantees a dividend even when the issuing corporation does not earn a profit is known as collateral preferred stock. Unlike common stock, which may or may not pay dividends and has no assurance of dividend payments, preferred stock generally offers dividends that must be paid before any dividends can be issued to common stockholders.
In particular, collateral preferred stocks have assets set aside to ensure that investors receive dividends regardless of the company's financial performance. This feature makes them a safer investment in terms of income security, reflecting the approach of diversification to reduce investment risk.
Decisions regarding when a firm will issue stock, pay dividends, or reinvest profits are typically made by the company's board of directors. These decisions are influenced by whether the firm is private or public, as each type of corporation operates under different sets of rules and expectations regarding financial disclosures and shareholder relations.