Ep. 57: Dividend Kings, AI Picks-and-Shovels & Hybrid Income Strategies

Usually when we talk about investing, there's this underlying expectation of smooth sailing.
Right. It's pitched is this very passive thing. Exactly. You do your research, you buy a solid
company, you hold it, and you just sort of watch the line go up over the years. It's supposed to be
like you're on a luxury cruise ship. You know, relaxing. You let the market do the heavy lifting
while you just enjoy the buffet. Yeah. But then you look out the window at the market right now
in May of 2026, and suddenly that cruise ship is caught in a category five hurricane.
Oh, absolutely. We are looking at a financial landscape that is volatile, unpredictable,
and honestly a little intimidating if you're trying to build wealth. I mean, we've got
massive geopolitical shocks, sticky inflation that just refuses to die, and a tech sector that is
completely rewriting the rules of global infrastructure. It is the absolute definition of a macro
economic storm. And when you're caught in the storm of this magnitude, you don't just need a
sturdy ship. You need a really, really reliable anchor. Yes, and for a lot of people listening to
this right now, that anchor is cash flow income investing. So welcome to today's deep dive.
We are diving into a massive stack of recent financial analysis today. Everything from dense
market reports and YouTube deep dives to some really exclusive interviews to decode how investors
are actually generating steady cash flow in this incredibly volatile world to let cover. It is.
But our mission today is to extract the ultimate aha moments about modern income investing.
We're going to cut through the heavy financial jargon, and we're going to understand the mechanics
behind everything from the old school dividend giants to new age AI infrastructure,
and even these complex new volatility farming ETFs. And it's a fantastic cross section of data,
really, because it illustrates a fundamental evolution. Income investing in 2026 isn't just about,
you know, buying your local utility company and going to sleep anymore. It requires a much more
active understanding of how cash is actually generated. Okay, let's unpack this. Because before we
get into the really wild modern engineering, and we have some strategies in the stack targeting
14% yields that we will absolutely get to. We have to understand the foundation. The anchors.
Right. The oldest, most reliable anchors out there. The dividend kings. And a perfect case study
for this is ABV. Oh, ABV is a brilliant starting point. If you want to understand how a legacy company
survives decades of economic turbulence, you look at them. I mean, they are sitting on a 54-year streak
of consecutive dividend increases. But if you look at their current reality, they are going through a
massive identity crisis. You really are. Look at their Q1 numbers. Their flagship immunology
drug, Humira, which is basically a money printing press for them for years, just saw it sales drop
over 40%. Yeah, down to 688 million. Exactly. Because cheaper, biosimilar competitors finally hit
the market. To me, it feels like a legendary rock band that just lost its iconic lead singer.
You'd think the band is done right. But somehow, the backup singers are stepping up and selling out
stadiums. There is a highly accurate way to look at it, actually. The backup singers in this
pharmaceutical transition are their newer immunology drugs, Skyreasy and Rhinvok. And the numbers
are crazy. Staggering. Skyreasy alone generated 4.5 billion dollars in Q1 that represents 29%
year-over-year growth. Wow. And Rhinvok hit 2.1 billion. So they aren't just barely surviving the
loss of Humira. They're actively thriving. And they're projecting over 31 billion in combined
revenue for those two drugs this year. Plus, they just announced a $100 billion research and development
commitment over the next decade. Right. They're pouring billions into new manufacturing campuses
in North Carolina and Illinois. But here's where I want to push back. They're spending all this money
on R&D. Their biggest historical cash cow is fading. Yet they are still paying out a 3.3% dividend yield.
Are these legacy companies just paying dividends out of sheer habit even when maybe they
shouldn't? Like, is it just a vanity metric to keep that 54-year streak alive for the marketing?
What's fascinating here is the underlying math, specifically the relationship between payout
ratios and earnings growth. You see, a dividend is never safely paid out of habit. It's paid out
of free cash flow. Right. And a dividend is only sustainable if the underlying earnings are growing
to support it. If we look across the analysis, there are three other dividend aristocrats currently
carrying moderate buy ratings that perfectly prove this point. Johnson and Johnson, IBM and PPG
industries. Exactly. Because J&J isn't just selling baby powder anymore, they've pivoted into an
oncology powerhouse and their net income grew over 90% in 2025. And they've got a 64-year dividend
growth streak to protect. Yeah. And IBM is deep into hybrid cloud and AI, posting 76% net income growth
last year. They are growing the actual pie. Precisely. And look at PPG, the global paints and
coatings producer. They have a 54-year dividend growth streak. But their payout ratio is only 36%.
Meaning, they only pay out 36 cents of every dollar they earn and profit to the shareholders.
Correct. The remaining 64 cents is kept internally to fund future growth, acquisitions, or debt reduction.
So to answer your question, these aren't just legacy payouts funded by borrowing money to keep
up appearances. They are actively funded returns backed by surging, newly reinvented profits.
That's the mechanical secret to how a company maintains a dividend through a massive transition phase.
Okay. That makes sense. Farma and tech can invent a new cancer drug or a new cloud service to keep
their earnings growing and fund that dividend. But what about the companies that can't just invent
something out of thin air? You mean the companies that are physically bolted to the ground?
Yeah. You're talking about physical infrastructure. And unlike a software company,
physical infrastructure companies are entirely at the mercy of the 2026 macro environment.
They had to deal with the real world. You know, inflation, steel prices, interest rates,
and global conflict. And the macro environment in the physical world right now is intense.
Looking at the underlying drivers for the recent oil spike, 2026 has been heavily shaped by the conflict
in Iran and the resulting closure of the state of Hormuz. Right. And just to look at the market
mechanics impartially, that geopolitical reality directly caused West Texas intermediate crude,
the US benchmark to jump from about $60 a barrel in January up to over a hundred.
And when you have a systemic macro shock like that, the market immediately divides into winners and
sufferers. Always. And in this environment, a clear winner emerging from the analysis is the
pace of American energy independence ETF ticker US AI. It's up nearly 26% a year to date and yields
over 4%. I really love the analogy used to explain USAI's success. It's the toll road thesis.
Oh, yeah, that's a great one. Basically USAI owns North American midstream energy assets pipeline,
storage terminals, processing plants. If you own a literal toll road, you don't actually care if
the car is driving on it or beat up sedans worth two grand or luxury sports cars worth 100 grand.
You just collect a flat toll for every single car that passes through exactly. It's the same
with pipelines. They don't care if oil is $60 or $100. They charge a fee for the volume of liquid
moving through the pipe. And because the state of Hormuz was closed, every available barrel had to be
massively rerouted through North American infrastructure like the Permian basin or Canadian export terminals.
The brilliant structural advantage volume went up so their toll collection went up completely
insulated from the commodity price itself. But on the flip side. The sufferers. Right. The most
prominent example of a company catching the brunt of the storm is the massively popular real estate
investment trust. Realty income ticker. Oh, man, realty income. This is the retail investor darling.
It really is. They pay a 5% plus yield. They pay it monthly. And their underlying cash flow,
what real estate folks call AFFO or adjusted funds from operations, which is basically the actual
cash leftover after you pay for building maintenance. Right. That is actually growing by about 3 to 3.7%
this year. But the stock price is down over 8% across the last five years. Yeah. And looking under
the hood, there is something that seems really alarming. A decade ago, realty income had 235
million shares outstanding. Today, they have 894 million shares. That is a lot of delusion. They
have massively diluted their stock. Isn't printing more shares inherently terrible for the investor?
You're literally slicing the same pizza into smaller and smaller pieces. It intuitively feels terrible.
Yes. I mean, if a tech company did that, investors would completely revolt. Yeah. But we have to
decode the structural mechanics of a read by law to maintain their tax advantage status. A real estate
investment trust has to pay out 90% of its taxable income to shareholders as dividends. Meaning,
they legally aren't allowed to build up a massive war chest of cash. Exactly. They virtually
know retained earnings. So if realty income wants to grow its portfolio, if they want to go out and buy
a new grocery store or a new pharmacy to generate more rent, they only have two choices to get the money.
Take on new debt or issue new equity, which means selling more shares.
Over the last few years, as interest rates skyrocketed, taking on new debt became incredibly toxic
to a balance sheet. So issuing equity when rates are high is actually a defensive survival mechanism.
It's a strategic shift to protect the company from crippling interest payments.
Because the alternative is loading up on seven or eight percent commercial loans that would wipe out
their profit margins entirely. Exactly. And there's very little relief in sight.
The market data currently shows there's only a 13% chance of the federal reserve cutting
interest rates by December 2026. And ironically, that's largely because the oil spike we just
talked about is making the cost of goods more expensive, driving inflation right back up.
It's a vicious cycle, which is exactly why analysts suggest that realty income currently sitting
beaten down in the low 50s price point might represent a significant margin of safety for a patient
investor. Because you're buying a stable, predictable 5% yield from a company managing its balance
sheet responsibly, while the rest of the market is just panicking about interest rates.
All right. So we've looked at traditional energy pipelines collecting tolls in the physical world.
But here's where it gets really interesting. What about the physical pipelines required to power the
digital world? The infrastructure demands of the AI revolution. They are staggering. Unbelieve.
If we connect this to the bigger picture, you were looking at the modern picks and shovels plies. Yes.
And the standout here is a company called Solstice Advanced Materials Ticker SOLS. They were spun
off from Honeywell back in October 2025. They started it around $48 a share. And they are already trading
over $80. And they are the ultimate picks and shovels company. They aren't trying to code the next AI
chatbot. They are manufacturing the physical materials that make the AI possible. They are dropping
$200 million to expand semiconductor material facilities in Spokane, Washington. They're investing
another $200 million in ballistic fibers in Virginia. And amazingly, they operate the only US-based
uranium conversion facility, which is entirely sold out through the year 2030 to power nuclear reactors.
It's a highly strategic portfolio of assets. And if we look historically at picks and shovels plays
during massive technological revolutions, the returns can dwarf the flashy consumer facing companies.
The ones everyone talks about. Exactly. The market analysis draws a direct parallel to companies
like Caterpillar providing the massive backup generators for data centers or carrier providing
the specialized HVAC systems to cool them. In fact, carriers data center cooling orders are
currently up 500%. But wait a minute. Our mission today is understanding income investing. Right. Solstice
just initiated their very first dividend earlier this year. And the yield is 0.37%. It's tiny.
That is basically a rounding error. Yeah. If you're an income investor looking for cash flow,
why do you even care about a stock paying less than half a percent? Especially when their Q1 earnings
per share actually dropped 37%. Well, this brings us to the core mechanics of dividend growth
investing versus chasing current yield. Let's address that 37% earnings drop first. When a
subsidiary is spun off from a giant conglomerate like Honeywell, it loses access to all those shared
corporate resources. Suddenly, Solstice has to build and pay for its own HR department,
its own IT infrastructure, its own executive overhead. Oh, right. That creates a temporary heavy
drag on their earnings per share, even though their actual top line revenue grew by 10%.
Okay. So it's the financial growing pains of finally moving out of the parent's house.
The rent is suddenly very expensive. Precisely. But back to your question about why an income
investor cares about a 0.37% yield, they care because Solstice has a pristine balance sheet with
only 2 billion in debt. And 22% of its total revenue is tied directly to the AI and nuclear super
cycles. Got it. You do not buy Solstice for the yield it pays today. You buy it for the yield on
cost. It will pay 10 years from now. You were willing to tolerate the short term overhead pains
in a tiny starting yield because the underlying mechanism suggests that dividend will double and
double again, as those new facilities in Spokane and Virginia come online and start printing cash.
Okay. So if you are an investor listening to this, you've now got these very different puzzle
pieces on the table. You've got the slow growing dividend kings like Abdi, you've got rate sensitive
reeds like realty income, and you've got pure infrastructure growth plays with tiny dividends
like Solstice. How do you actually put them together into a machine you can live off of?
This is where the analysis gets really practical. Running a 20 year showdown that pits the classic
4% rule against a modern high yield strategy. This raises an important question. Yeah. What happens
when standard financial theory collides with market reality over two decades? Let's run the exact
numbers they simulated. The scenario assumes a $500,000 starting portfolio over a 20 year retirement.
Strategy A represents traditional financial advisor advice, the 4% rule. You hold a standard 60%
stock 40% bond index portfolio. It assumes like a steady 7% market return, a 3% inflation rate,
and you physically sell off a little bit of your portfolio every single year to pay for your life.
A very standard universally taught approach. Right. But strategy B ignores the 4% rule entirely.
It chases a 6.4% blended yield using a highly curated mix of assets. And what's in that mix?
It includes conservative dividend ETFs like SCHD which yields about 3.4%. It includes moderate
yielders in the 5 to 6% range using real estate and telecom tickers like realty income enterprise
products partners Verizon and Altria. Okay. And finally it layers in aggressive business development
companies like Ares Capital ticker ARCC which pushes a massive 9.97% yield. And importantly,
it only assumes a very modest 3% capital appreciation on the underlying stocks.
Though we should decode that Ares Capital inclusion really quick. Sure.
The research correctly notes that ARCC has recently seen some slippage in its NAV,
its net asset value, and an uptick in non accruals which is just industry jargon for bad loans that
aren't paying interest. So that near 10% yield carry significant underlying risk.
Exactly. You have to watch the actual value of the loans they hold. But even factoring that in over
20 years, the results of the simulation are wild. Strategy B, the high yield approach absolutely
crushes it on raw cash. How much difference are we talking? It generated $680,000 in pure income
compared to strategy A's $537,000. And because strategy B wasn't constantly selling off shares,
it ended with a final balance of $903,000 while strategy A ended with basically what it started with
around $540,000. Wow. So looking at the math, high yield is the undisputed winner, right?
Well, looking at the math requires asking what winning actually means for your specific life.
Fair point. Yeah, strategy B generated significantly more raw dollars.
But the research explicitly points out that strategy A held its inflation-adjusted purchasing
power much better. Interesting. Because strategy A is built on broad market growth,
its value compounded to keep pace with the rising cost of living more effectively over two decades
than the static high yielders did. See, if you are listening to this and you've been taught
the 4% rule your whole life, this simulation is probably making you rethink your entire retirement
spreadsheet. And I want to push back on the pure mathematical logic here, because spreadsheets
completely fail to account for human psychology. That is so true. With strategy A, the 4% rule,
if the market crashes 30% in year five, you still have to log into your brokerage account
and hit the sell button on your shares while they are at rock bottom just to pay your mortgage.
It goes against every survival instinct you have. That is emotionally terrifying.
But with strategy B, the high yield approach you never actually touched the principle.
You just collect the dividends that hit your account. Even if inflation takes a bite out of
your purchasing power over time, psychologically it feels infinitely safer. And that profound
psychological comfort is exactly why the overarching recommendation from the analysis
is the hybrid takeaway. You do not have to choose extreme A or extreme B. You can mix them.
Exactly. The optimal goal is to blend dividend growth like your J&J or your Solstice,
which protects your purchasing power from inflation with moderate, steady, yield like your USAI pipelines
or your real-t income properties to give you that current cash flow so you never have to panic
sell shares during a market crash. You are dynamically balancing absolute wealth maximization
with psychological peace of mind. Exactly. So what does this all mean for the modern investor who
wants to take that hybrid approach to the absolute extreme? Because the final section of our deep
dive looks at investors in 2026 who are utilizing some incredibly complex modern financial engineering
to fight inflation. They are using brand new, highly engineered ETFs and option strategies.
Yes, the case study of a $1 million portfolio generating over $12,000 a month in steady income.
If you do the math, that is an annualized yield of over 14%. It's staggering.
To achieve that $12,000 a month, this portfolio allocates 30% into a fund called QQQI,
which yields around 13 to 14%. It puts 15% into its sister fund, IWMI.
And the rest goes into individual stocks where the investor uses something called vertical-put credit
spreads instead of traditional covered calls. Plus, the analysis lists all these new funds that are
supposedly trading on sale. QDVO, BLKS, which is a crypto fund paying a wild 36% distribution rate,
GPIQ, GPIX, IRI. It sounds like a bowl of financial alphabet soup.
It does, and honestly, it sounds incredibly risky. First of all, you just casually read vertical-put credit
spread. For those of us who don't trade complex derivatives full-time one on Earth, is that?
Fair question. And secondly, if you are harvesting a 14% yield or a 36% yield,
aren't you basically just picking up pennies in front of a steamroller? It might look powerful,
but one wrong move in your entire portfolio gets vaporized.
It's a completely fair concern. Let's decode the jargon first. A vertical-put credit spread
is essentially an option strategy, where you act as an insurance provider for a stock.
But you also buy a catastrophic insurance policy for yourself at the same time to cap your maximum
potential loss. It generates income safely because you strictly define your downside risk.
Now, regarding the steamroller analogy, let's break down the mechanics using the insights from
the interview with Troy Cates, the co-founder of Neos Investments, the company behind QQQI.
What's his take? His core underlying thesis is that market volatility itself is an asset class.
Volatility is an income tool. Wait, how does volatility equal income? If the market is panicking
and the VIX is spiking to 30, shouldn't options funds be losing money not making it?
Think about the VIX, the market's primary fear gauge. Currently, it's hovering around a relatively
calm 17.5. But during that geopolitical stress involving Iran last month, it spiked up to between 25 and 30.
When fear goes up, the price of options goes up, the premiums, the cash you get paid for selling
the options surge. So if you are a fund like QQQI that generates its cash flow by selling options,
a higher VIX means you structurally make more money. But if the overall market is crashing,
doesn't the underlying value of the nasty Q stocks inside the QQQI fund crash too,
what good is the high yield if the principle is cut in half? That's where the rules-based
active management mechanism saves them. QQQI holds the top 100 nasty Q stocks. But it doesn't
just blindly write covered calls on all of them all the time. Well, they don't. No, depending on the
daily volatility, the only right calls on 50% to 90% of their portfolio. For example, in April of
2026, when volatility dropped a bit and the market looked prime to run, their algorithm dictated
the only right options on about 55% of the portfolio. Oh, which means the remaining 45% of their
portfolio was completely uncapped and free to go up in value. And April was a massive rally
month for the tech sector. So they captured the underlying stock price upside on nearly half the fund,
while still generating massive cash income from selling the options on the other half. Exactly.
They are mechanically capturing what's called the volatility risk premium. The historical spread
between the high volatility investors fear will happen and the slightly lower volatility that
actually happened. That's brilliant. The strict rules-based system removes all human emotion from the trade.
And the demand for this is so high that mid-Summer 2026 will see the launch of new Neo-Silver
and Boosted Russell 2000 ETFs to apply this exact same strategy to precious metals and small cap stocks.
But there has to be a catch. There it is. Tricades explicitly warns investors that they must
evaluate total return, not just the flashy distribution rate. Because a 36% yield on a crypto ETF
like BLKS doesn't help your retirement at all if the underlying Bitcoin asset drops 50% in value.
The yield will not save you from absolute capital destruction. Which is why the analysis emphasizes
that the key to surviving this ultra high yield strategy long term is forced reinvestment.
You cannot spend all 14% of that yield. No, you can. The golden rule they establish is to live on
60% of the generated income and automatically reinvest the other 40% back into the funds to
continually grow your share count and insulate your principle. That's the secret sauce.
So to wrap this massive deep dive up we've looked at ABV pivoting its entire pharmaceutical line-up
to keep its 54-year streak alive. We've explored how USAI collect structural tolls on oil pipelines
and how solstice is building the physical shovels in uranium facilities for the AI
and nuclear gold rush. You've covered a lot of ground. And finally we decoded how to harvest
high tech volatility with funds like QQQI. If there is one overarching takeaway for you listening
today, it's adaptability. Income investing in 2026 is no longer a set it and forget its strategy.
You have to adapt to the macro shocks. You have to blend your strategies and you have to
deeply understand the mechanics of where your yield is actually coming from. And that brings me to a
final somewhat provocative thought I want to leave you with building on the mechanics of that
Troy Kates interview. Okay, let's hear. We are currently watching retail investors pour tens
of billions of dollars into these rules-based options EPS like QQQI and GPIX all hungry for
that double-digit income. But if the entire market is systematically selling options to generate yield,
could the sheer overwhelming volume of all these automated trades eventually permanently suppress
the very market volatility they rely on to generate those yields. By trying to constantly harvest
the storm, have we engineered a market that will eventually eat its own tail? That is a fascinating,
slightly terrifying question to chew on. Is the anchor getting too heavy for the ship? Thank you so
much for joining us on this deep dive. Keep questioning the consensus. Keep looking under the hood of
those yields and we'll catch you next time.