There are two primary means to earn income as a stockholder. The first method is dividend income, and the second method is earnings from capital gains. With respect to the investor seeking dividend...

There are two primary means to earn income as a stockholder. The first method is dividend income, and the second method is earnings from capital gains. With respect to the investor seeking dividend income, when an investor buys a stock from a corporation with a primary focus to earn dividend income, they will typically expect a higher dividend on common stock versus preferred stock.

Discuss the dividend payment requirements of a common stock versus preferred stock, in terms of which type of stock has a primary claim on dividend distributions. Explain why the common stock investor demands a higher dividend rate.