In contrast, dividends are not fixed, so they can increase with inflation. As a result, dividend yields require less of an adjustment than bond yields to a higher inflation trend. Each year, the dividend can rise by the inflation rate as can the earnings and price of the stock. If dividends, earnings, and stock prices rise with the inflation rate, the yield can stay the same and the investor is still compensated for inflation losses. The net result in this scenario is a more constant dividend yield compared to bond yields.
