One of the more amusing moments of being a Dividend Investor in a Stock Market is regularly being thrown to the wolves as a "bond proxy." The US stock market has gotten so far away from a cash return to investors (~1.1% yield) that even the slightest expectation of getting a tangible manifestation of a business's success without having to sell it is a sign of being on the wrong team: "You want a cash payment? Buy a bond."
The retort is obvious: dividends from equities have the ability to grow over time, in line with the business. That helps offset inflation. Bonds generally do not have that virtue. Until recently, however, we had little to no inflation. All gains were "real." Well, that was then and this is now. Inflation is back. A growing income stream trumps a flat one. And there is no one better than the doyen of high-yield bonds, Marty Fridson, to point that out in his Reuters piece.
Over the past twenty years, I've regularly highlighted the yield-on-cost benefit of a growing income stream. In a low-to-no inflation environment, some clients listened; many yawned. With inflation back, investors would do well to pay attention to dividend growth and yield-on-cost.
Marty properly highlights the various risks/dos/don'ts, but the main point is that a diversified stream of income streams that rises over time can protect investors at the distribution phase against consumption-eroding inflation.
Those fortunate enough to be able to reinvest current dividends can take comfort knowing that their businesses are manifesting success with cash, not just "adjusted EBITDA blah, blah, blah", and benefit from an even higher yield-on-cost at a later time. H/t Marty.