Ep. 2: High Dividend Yields Are Eating Your Principal

Imagine this scenario. You log into your brokerage account. Mhmm. Maybe you're just scrolling on your phone. Right?

And you see a dividend yield that just makes your eyes pop. Mhmm. We're talking 9%, maybe even 10 or 12%.

Oh yeah, the double digit dream.

Exactly. It looks like free money. It feels like you've somehow hacked the system. But then, you zoom out. You look at your principal

actual pile of cash that's generating that yield.

Right. And it's shrinking. It's just slowly vanishing. Month after month, the pot of gold gets smaller even though the quote unquote yield percentage stays high.

It is basically well, it's classic siren song of the high yield trap. You are getting paid today, sure, but you are effectively eating your own tail to do it. You're withdrawing your own principal and just calling it income.

That is the exact central tension we are unpacking today. Is a 9% yield actually worth it if your capital is actively eroding? Or do you have to settle for the boring 3% to really build wealth? Welcome to the deep dive. Today we are tearing into the massive 02/23/2026 edition of the Informed Investing Newsletter.

And this edition is an absolute beast. I mean, have a stack of 11 distinct sources here.

Huge stack.

We're looking at a month long ETF study, a really heated debate on AI proof stocks, and a frankly painful reality check from a portfolio that dropped 50% because the investor chased the wrong numbers.

We really do have a lot to cover. We're gonna pull out actionable strategies for dividend investors, looking at everything from super safe foundational ETFs to really high risk sector plays in energy, gold and BDCs.

It's basically full roadmap, so we should probably just jump right into the foundation.

Let's do it. So the first source in our stack is a video where the creator did something that sounds he spent an entire month analyzing over 100 Dividend ETFs.

I saw that spreadsheet, it was massive.

Yeah, and he categorized them all into winners and losers. But looking at his winner column, I have to be honest here, it feels incredibly boring at first glance. He starts with what he calls the blue chip baseline, which is DIA.

Right, the SPDR, Dow Jones Industrial Average ETF.

Which is literally just the Dow 30 and the yield on that is, what, 1.45%?

Somewhere around there, yeah.

If I am an income investor looking to retire, 1.45% feels like a rounding error. Why would he call this a winner?

Because of the survival rate. You really have to remember that for a beginner, the biggest risk isn't low income. It's blowing up the entire account.

Right.

DIA tracks 30 massive US companies. It survived the great depression, the dot com bubble, the two thousand eight crash, all the post COVID inflation. The core argument here is that proven historical growth beats a flashy yield every single time.

So it's basically the do no harm option. It's the vegetables of your portfolio.

Exactly. If you put $10 in, you are only getting, like, a $145 a year in cash right now. But the capital appreciation, the actual growth of the stock price itself, has been over 500% over the last few decades.

Okay. Fair point. But for the listener who is thinking I need a little more juice than 1.45, he pivots to view I'm.

The Vanguard high dividend yield ETF. This is his growth play. It yields closer to 2.49%.

Which is definitely better, but still not exactly retire tomorrow money.

No. But you have to look at the composition. Unlike the Dow, which is super heavy on industrials, VYM leans heavily into financials, tech, and health care, plus it has a tiny expense ratio, just point 06%.

Nice.

If you are under 50, this is really where you look. You take that lower starting yield now and you just let the massive compounding do the heavy lifting for twenty years.

Okay, so those are the good guys. But I really want to talk about the losers because he put a massive stay away warning on some very popular tickers. Specifically the Global X Funds, SDIV and DIV.

Yes, and this is probably the most critical insight from that entire first video. These funds constantly show up on stock screeners with massive yields. I mean SDIV was flashing nearly 9.7%, DIV was at 6.7.

Which sounds amazing. On paper, that solves all your retirement problems.

Right. It sounds amazing until you look at the total return, which is completely negative.

Hold on. Walk me through that. How can you have almost a 10% yield and a negative total return? The math just feels wrong.

It's the mechanics of the yield trap. You have to understand how yield is calculated in the first place. It's the dividend payout divided by the stock price.

Right.

So if a stock's price crashes by 50%, the yield percentage technically doubles, assuming they don't cut the dividend right away.

Oh, so the ETF is mechanically buying companies that are crashing?

In a lot of cases, yes. These particular funds often systematically buy the highest yielding stocks globally. But if a stock is yielding 10%, it's usually because a market hates the company and the price is completely tanked. So SDIV is effectively a basket of falling knives.

That is a terrifying mental image. You get your dividend check, but the underlying companies are losing value faster than the dividends can even pay out.

Precisely. The creator was completely adamant. Do not touch these.

He did have a crowd favorite to balance things out though. SCHD, the Schwab U. S. Dividend Equity ETF, which I feel like this one has an absolute cult following online.

It does and for a very good reason. It yields about 3.79%, which is a really nice middle ground, but the magic is in the screening methodology. It doesn't just blindly pick high yield.

It filters for quality.

Right? Exactly. Yeah. Cash flow to debt ratios, return on equity, it specifically targets quality companies in consumer defensive, health care, and energy that have a history of actually growing their dividends year over year.

So the share price has been a bit flat recently, hasn't it?

It has, but mostly because the broader market has been so obsessed with AI stocks and SCHD holds quote unquote boring stuff like Chevron or Lockheed, but he calls it a sleep well at night hold. Even if the share price is flat that income grows every year.

Makes sense. He also quickly touched on SPYD yielding around 4.44% as a pure income generator.

Yeah, SPYD is good for shorter horizons but you have to be careful because it's super heavy in real estate and financials.

Which makes it really sensitive to interest rates.

Exactly, so just keep an eye on the Fed if you're holding that one.

Okay, let's pivot from these massive broad market ETFs to something a bit more niche. We have an article here from ETF Trends about Small Caps specifically the WisdomTree U. S. Small Cap Dividend Fund ticker DES.

This is fascinating because everyone right now is just staring at the magnificent, the giant tech stocks. They are incredibly crowded and they are expensive. Small caps have been largely ignored.

And DES is doing something really unique with its methodology. It's not just buying the biggest small companies.

No. And that's the key. Most funds weight their holdings by market cap. The bigger the company, the more of it they buy. DES weights by expected cash dividends.

Meaning they buy companies based on the actual cash they're projected to pay out.

Correct. And this creates a really cool contrarian strategy. Think about it. If a stock's price sinks but its dividend remains solid, its yield goes up. So when the fund rebalances, it effectively doubles down on those stocks.

It automatically buys the dip.

It's like a robot that hunts for deep value, and the performance shows it's working. Despite lagging a bit back in 2019 and 2020, the source notes it's up nearly 12% year to date in 2026, which is beating the Russell two thousand.

It's a great way to find value outside that massive tech bubble.

Absolutely.

Speaking of money and retirement, let's talk about the part that actually affects daily life. Spending the cash. We all know the 4% rules, basically the 10 commandments of financial planning. Withdraw 4% of your portfolio a year and you hopefully don't run out of money before you die.

Right. It's the gold standard for safety.

But we have an article here from two forty seven Wallcent that essentially says forget the commandments, give yourself a raise. They are arguing for a 5.5% withdrawal rate.

Which is a huge jump. On a million dollar portfolio, that is the difference between 40,000 a year and 55,000. That is a verifiable lifestyle change right there.

But isn't that super risky? I mean, if the market tanks and I'm pulling out 5.5%, won't I drain the bucket way too fast?

It is risky if you do it blindly. The article argues you can only pull this off if you implement specific strategies or guardrails.

Okay. Unpack the guardrails. How do I take 5.5% without going broke at 85?

Well, the first strategy is the one nobody ever wants to hear. Delay retirement.

Naturally.

If you retire at 70 instead of 60, the money simply has to last fewer years, plus you boost your social security buffers. So you can burn the portfolio faster.

Okay. But what if I wanna retire right now?

Then you need strategy two, dynamic withdrawals. This is the absolute key. You do not just set up an auto transfer of 4,500 a month and forget about it. You have to look at the market. When the market is hot, meaning returns are above 5.5%, you take your full amount.

And when the market crashes.

You tighten the belt. You might have to drop that withdrawal down to three or 4%.

That sounds stressful though. Like, sorry, the S and P is down. We can't go on vacation this year.

It is stressful, which is why strategy three is so important. You have to keep one to two years of living expenses in pure, boring cash reserves.

Mhmm. I see. So if the market crashes, I stop selling stocks completely.

Exactly. You just live off the cash pile. You avoid what's called sequence of returns risk, which is selling your assets when they are dirt cheap. Right. They also suggest a blended mix.

Build a portfolio yielding two to 3% in dividends and cover the rest by selling off your growth stocks. This blended approach really prevents running out of funds.

It sounds like it requires active management, but that extra income could totally be worth a hassle. Now let's shift gears to something that is on literally everyone's mind in 2026. Artificial intelligence.

Oh, this was a fun one.

We have a thread from Reddit debating quote unquote AI proof portfolios. The premise is simple. If AI is going to disrupt everything digital, where do we hide our money? And the consensus in the thread seems to be buy physical things.

Right. The thesis is to invest in things AI simply cannot do. AI cannot physically plunge a toilet. It cannot fix a roof.

So the picks were companies like Lowe's.

Home improvement. You need physical lumber, physical labor.

Domino's pizza.

Pizzas have to be physically made and physically delivered. I mean, maybe a drone delivers it eventually, but the product itself is biological. You eat it.

My favorite pick was waste management.

The ultimate defensive stock. We will always have trash. AI cannot magically make garbage disappear.

And Procter and Gamble was in there too. The argument being AI can't shave your beard or clean your house.

Right.

But there was a counter argument in the comments that I thought was really sharp because it feels a little bit Luddite to just say avoid all tech.

Yes. The contrarian take. One commenter pointed out that actively avoiding disruption can be a huge mistake. They compared it to the .com bubble. If you bought soda companies specifically to avoid the Internet, you missed out on the biggest wealth generation event in human history.

Think of the difference between Amazon's returns and Pepsi's returns.

Exactly. And the other major point was that almost all companies actually benefit from AI optimization.

Right. Waste management uses AI to optimize truck routes.

Domino's uses it for logistics and HR. The real risk to a business isn't AI exposure. It's having low barriers to entry. You want a moat.

That concept of a moat brings us perfectly to the reality check portion of this deep dive. We have two videos in the stack that are honestly a bit of horror story.

Yeah, they really are.

One is a portfolio autopsy from an investor calling himself the infinite dividend hunter. An autopsy usually implies something died.

In this case, a massive amount of capital died. It is a harsh lesson in what happens when you ignore the moat and just chase the yield. He built a high yield portfolio full of crypto linked ETFs, leveraged funds, tickers like BLOX and COADW.

And what was the actual damage?

His BLOX position alone was down about 74%.

74%. That is completely catastrophic, and he did this just for the income stream.

He was entirely blinded by the yield percentage, but now he's having to do a very painful pivot. He's explicitly stating in the video that he is selling those assets and trading 100% yields for sustainable ones. He wants NAV stability now.

A very hard lesson in yield chasing. And to reinforce that, we have another video. This one contrasts that disaster with a guy who owns a $1,700,000 portfolio.

The math in this comparison is undeniable. He compares QYLD versus SHD.

QYLD is a super popular covered call ETF, right? People love it because it pays out monthly.

They do. But the source showed that for years, QYLD's income has been totally flat. It just pays out roughly 14 to 20¢ a month year after year.

It sounds stable, but inflation.

Exactly. A flat payment in 2026 buys a lot less groceries than a flat payment did in 2016. It's effectively a pay cut over time because your purchasing power constantly drops.

Right.

Contrast that with SCHD. Over a decade, SCHD's dividends grew from 4¢ to over 25¢.

So with the high yielder, I am literally getting a pay cut every year. Yeah. With the dividend grower, I'm getting a massive raise.

That is the whole takeaway. You need dividend growth to maintain purchasing power. Stagnation is a killer.

Okay, so we've talked about the dangers of chasing bad yield. Let's look at a sector that is traditionally known for high yield, but might actually offer some of that safety we're looking for. Energy.

Specifically, midstream energy.

We have an article doing a stock showdown between two giants. Energy Transfer, ticker ET, versus Enterprise Products Partners, ticker EPD.

This is a classic aggressive versus conservative battle.

In the red corner, energy transfer.

ET is the aggressive play. It's yielding around 7.1%. They have slightly higher leverage and are spending over $5,000,000,000 on capital projects, expanding pipelines, building infrastructure. The verdict in the article is that ET offers better total return potential right now because it's undervalued.

And in the blue corner, Enterprise Products Partners.

EPD is the conservative choice. They have twenty seven consecutive years of distribution lower leverage, massive stock buybacks, it is the steady, reliable option.

But for listeners who don't want to pick individual winners, the next article suggests going the ETF route. Funds like AMLP, which yields 7.73% and tracks infrastructure MLPs or UMI yielding 5.65% which is actively managed and pays monthly. But I want to pause on why we even like this sector. You said midstream energy. Why midstream?

Think of midstream companies like toll roads.

Toll roads for energy.

Exactly. They own the pipelines. They operate on volume based fees. They get paid based on the flow of energy, the volume of oil or natural gas moving through the pipe, not the actual price of a barrel of oil.

So if commodity prices get super volatile and oil crashes, but people are still driving cars and eating their homes?

These companies still get paid their toll. It offers a massive buffer against that commodity volatility.

I love that toll road analogy. It feels like a physical mode again. Now speaking of cash flow, let's talk about the income giants. We have a video breakdown of business development companies. Yeah.

BDCs. The math presented here just blew my mind.

The central premise of the video is, could $100 a month turn into $22,000 a month in income?

Which sounds like a late night infomercial. But walk us through the logic. How does a BDC actually work?

A BDC is basically a bank for middle market companies, businesses that are too big for a local credit union but too small to do a massive IPO on Wall Street. The BDCs lend them money at fairly high interest rates.

And why is the yield so high for the investor?

Because of their tax structure. By law, BDCs have to pay out 90% of their taxable income to shareholders. They pass those high interest profits directly to you.

You get yields of nine, ten, 11%.

Exactly. The source highlights a few picks. Ares Capital, ticker ARCC, which is the absolute giant in the space yielding around 9.5%. Then there's Capital Southwest, CSWC, which focuses on the lower middle market and pays monthly, and Blue Owl, OBDC, which does asset backed lending.

And the $22,000 figure?

That is just the magic of compounding high yields over thirty years. The math shows that if you continuously reinvest those huge dividends, the snowball effect becomes exponential.

But there is a catch, surely.

The catch is credit risk. You are lending to smaller companies. If the economy completely tanks, those businesses might default. You have to watch for non accruals which are basically bad loans where the borrower has stopped paying.

Keep an eye on the bad loans, got it. Let's touch on gold really quickly. With gold prices hitting record highs in 2026, video 10 gives us a comparison of two miners capitalizing on it: DPM Metals and Ocean Gold.

Another tortoise versus hare situation. DPM Metals is the marathon runner, zero debt, absolute hash fortress, big focus on ESG, very stable.

And Ocean Gold, ticker OGC is the sprinter.

Yes. High growth, massive cash flow right now, aggressive stock buybacks, and they're planning a listing on the NYSE soon. They are moving fast.

So we have covered a ton of ground today. We started with the safety of the Dow, looked at the horror stories of crypto yield traps, explored energy toll roads, but we need to bring it all home. The final video in our stack is from Doug the Retirement Guy and he talks about the holy grail for dividend investors total return without NAV erosion.

This is the exact solution to the problem we opened the show with. How do you get high income without your portfolio vanishing?

Right. He lists a few specific funds CHPY, JEPQ, and VY. What is the secret sauce here?

The secret is paying attention to total return. Total return equals income plus price action. You have to look at both.

Not just the yield percentage.

Never just the yield. Take CHPY for instance. It's the YieldMAX Semiconductor ETF. Now normally you'd run away from these because CHPY has a yield of around 45.

45% is absurd.

It is. But the source points out it actually has a positive total return of 77%.

Wait, how is that possible?

Because of disciplined option exposure and the underlying assets, the semiconductor stocks, went up so dramatically that they easily covered the massive payout. The capital appreciation outpaced the dividend.

So I can take a crazy high yield, provided the underlying asset is absolutely skyrocketing.

Right. Or, if the fund strategy is conservative enough to preserve your capital, Doug calls JEPQ and GPIQ the gold standards for retirement. They generate a 10 or 11% yield using very conservative options on the Nasdaq, which has enough natural upward drift to keep your principal perfectly intact.

The key takeaway he had was avoid funds where price drops equal the dividend payout.

If a fund pays you a dollar in dividends but the share price drops by a dollar, you haven't made a single cent. You just successfully transferred your own cash from one pocket to the other. You need funds that pay you and maintain their share price.

So synthesizing everything we've looked at today. We started with the ultimate safety of DIA. We saw the absolute carnage of yield traps with BLOX.

Uh-huh.

We've found physical stocks to hedge against AI disruption. And we finished with the critical importance of preserving your NAV.

It really requires a total shift in mindset. A lot of investors sort their screeners by highest yield, hit by, and go to sleep.

I think we've all done it at some point.

We all have. But this deep dive proves that real wealth is built by looking at the machinery under the hood. Is the dividend coming from a toll road pipeline, a growing tech company, or are they just selling off pieces of a dying asset to cut you a check?

It's the difference between eating your seed corn and actually planting it.

That's a perfect analogy.

So here's my final provocative thought for you to mull over. Open your portfolio today. Look at your income holdings. Are you simply renting that income from an asset that is slowly dissolving? Or do you actually own an income stream that grows faster than inflation?

The answer to that question is literally the difference between a highly stressful retirement and a wealthy one.

Check your NAV. Check your total return. Thanks for joining us on this deep dive. We will catch you on the next one.