Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:

Preferred stock dividends are paid before common stock dividends. Cumulative preferred stock will receive dividends even if they are not distributed during a certain period since they will add up until the company is able to pay dividends again.

Another preference si that in case of dissolution, preferred stockholders are paid before common stockholders (in case there is money to distribute).

Explanation:

answerreactive approach;

answertaxable income;