Preferred stock sits between bonds and common stock in the capital structure. Like bonds, preferred shares pay fixed dividends. Like stocks, they represent ownership. Preferred shareholders get paid dividends before common shareholders, and they have priority in bankruptcy — but they usually do not get voting rights.
Example: A company issues preferred stock with a $100 par value and 6% dividend rate. You receive $6 per share annually, regardless of how the company performs (as long as it is solvent). If the company skips a dividend, "cumulative" preferred shares accumulate unpaid dividends that must be paid before any common stock dividends.
Major issuers of preferred stock include banks, utilities, and REITs. Warren Buffett famously invested $5 billion in Goldman Sachs preferred stock during the 2008 crisis — receiving a 10% annual dividend plus warrants. Preferred stocks offer higher yields than bonds (typically 4-7%) but less upside than common stock.