Impact of Financial Distress on Preferred Shares

In the context of preferred shares, investors often consider several key attributes that differentiate them from common shares. One such feature is the dividend payment structure, which determines how and when dividends are paid to shareholders. Assume that Company X has issued both common and preferred shares. The preferred shares have a fixed dividend rate, while common shares depend on the company's profits and the board's discretion for dividends. If Company X faces a financial downturn affecting its ability to pay dividends, what is the likely scenario for the preferred shareholders?