On pg 135 in scheweser book 13, it says if the company position improves , then return to bond holders should be greater than equity holders, including dividends paid on the short position I thought if you are short equity, you have to pay back dividends to the loaner of the equity.
yes, the short position pays the dividend. but I think that what they mean is that the cupon of the bond will offsett the dividend yield, and because the bond has priority, the price of bond will increase faster than that of the stock this is why coming out of a recession the high yield bonds should outperform stocks