The Coupon Cushions the Blow - It must be remembered that coupons are legal obligations of the issuer to pay regular coupon interest and par at maturity while dividends are simply a promise to pay. Should a company cancel a dividend payment, there are really no repercussions but if they miss a coupon payment, they are then in default - which is obviously not desirable. So the coupon makes a bond a much more reliable and stable stream of cash flow for the investor and that is especially true for higher-yielding companies.

Higher up the Capital Structure - Corporate bonds are much higher up the capital structure of a company than equities. Although most bonds are unsecured obligations of the company, they rank much further ahead of the equity which ranks right at the bottom. If a company does run into financial trouble, the bondholders will have a much higher priority claim on the assets of the company versus the equity holder’s claim due to their ranking within the capital structure. This higher ranking in the capital structure produces a far better recovery for bondholders versus equity holders.  

A Date with Destiny - Another interesting and positive characteristic of corporate bonds is that they have a finite maturity date where the issuer is legally obligated to pay the investor back their principal at par. Equities, on the other hand, have an infinite life and no guarantee of getting the invested capital back at par. We search out companies who are close to their Date with Destiny – a bond or credit facility maturing – as there are usually great opportunities around such dates to create capital gains.

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