Final answer:
Preferred stockholders have a higher claim on the company's assets and earnings and receive a fixed dividend payment.
Step-by-step explanation:
One advantage of preferred stock over common stock is that preferred stockholders have a higher claim on the company's assets and earnings. This means that if the company faces bankruptcy or liquidation, preferred stockholders are paid off before common stockholders. Preferred stockholders also typically receive a fixed dividend payment, whereas common stockholders may or may not receive dividends.
For example, let's say a company has both preferred and common stock. If the company goes bankrupt and has to sell off its assets to pay off debts, the preferred stockholders will be paid off first, up to the value of their investment. Only after the preferred stockholders have been fully paid will the remaining assets be distributed to the common stockholders.
Therefore, the advantage of preferred stock is that it provides a greater degree of security and income stability compared to common stock.