What characteristic of preferred stock provides downside protection?

Preferred stock is known for its characteristic of providing consistent dividend payments, which is what offers downside protection to investors. Unlike common stockholders, preferred shareholders receive dividends before any distributions are made to common stockholders. This means that in periods of financial difficulty or reduced earnings, preferred stockholders are prioritized for dividend payments, ensuring that they receive some form of return even when the company's performance may be suffering. This particular feature makes preferred stock a safer investment compared to common equity, providing a level of protection against potential losses.

In addition to the consistency of dividend payments, preferred stock also typically has a fixed dividend rate, which can help protect investors from market fluctuations. This can be crucial during economic downturns, as it provides a predictable income stream as long as the company remains solvent.

Voting rights and transferability do not offer downside protection in the same manner. While they may enhance the overall attractiveness of an investment, they do not directly contribute to the financial security of the investment. The lower risk of bankruptcy is a consequence of the investment structure but does not inherently relate to preferred stock specifically; it can apply to a variety of securities depending on the company’s financial health. Thus, the consistent dividend payments provided by preferred stock are the primary characteristic that confers downside