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.

The dividend payment requirements of common stock and preferred stock differ in terms of which type of stock has a primary claim on dividend distributions. Preferred stocks have a greater claim to dividends than common stocks, meaning that the company must first use their profits to pay any outstanding preferred dividend payments before they can issue dividends to the holders of common stocks. This means that if the company runs into financial difficulty, preferred shareholders will be paid out before common shareholders.

However, this does not mean that all companies issue dividends to both types equally; rather they determine how much is paid out based on a variety of factors such as profitability and other external conditions. Common stock investors will usually demand a higher dividend rate than those who invest in preferred stocks because they bear more risk since their returns are not guaranteed like in the case with preferred stocks. Additionally, common stock investors could potentially receive larger returns from capital appreciation should share prices rise over time due to market speculation or increased earnings within the industry/sector. Therefore it makes sense for common stock investors seek higher yields when investing in order maximize their potential returns on investment.