Ep. 58: Defensive Dividends, Congressional Buys & The Art of Doing Nothing

Welcome to today's Deep Dive, you know, as a learner trying to navigate the market,
what if I told you that the hardest part of building a portfolio that can literally pay
your utility bills isn't figuring out which stocks to buy?
Right, which is what everyone focuses on.
Exactly, yeah.
But it's actually having the psychological endurance to do absolutely nothing.
Yeah, it really is the ultimate test for any investor.
I mean, we have this deep-seated bias for action.
You picture a high stakes casino, you know, multiple monitors flashing red and green.
It feels like if you aren't moving, you aren't making money.
But when you step into the world of dividend income investing,
that entire high speed illusion kind of just shatter.
Which is exactly why we are here today.
The mission for this deep-dive is to take a massive stack of research
and we have a lot to get through.
We really do.
We're talking technical breakdowns of defensive ETFs,
a mathematical blueprint for covering your monthly living expenses,
the actual dividend streaks of covered call strategies,
and even recent congressional training disclosures.
Plus some very candid personal confessions from a millionaire welder,
which is probably my favorite part of the data today.
Oh yeah, that story is incredible.
So we're going to distill all of this down into a cohesive actionable blueprint for you.
Okay, let's unpack this.
Before we get lost in the weeds of yields and tax codes,
we need to anchor these numbers to real life.
Right, because abstract percentages don't mean anything until you apply them.
Exactly.
When we talk about building an income machine,
what does a dividend portfolio actually buy you?
Well, broadly speaking, it buys you the ultimate luxury,
which is peace of mind.
But let's put a heart number on it.
Let's do it.
Looking at the latest data on the average American household budget,
we are seeing about $519 a month going strictly to groceries.
Which I mean, it feels like it goes up every single time you step foot in the store.
Oh, without a doubt.
Yeah.
And add to that about $280 for utilities,
and maybe another hundred or so for your phone and internet.
So you're looking at what, over $900?
Yeah, roughly.
The core baseline just to keep the lights on,
the fridge stocked, and the Wi-Fi running is about $905 a month.
That is a very real, very relatable number.
So over $900 a month,
how does a dividend strategy actually solve for that?
Like, what does the math look like?
The math points to a specific target,
a $185,000 portfolio.
Okay.
If you can generate a blended yield of 6.4% on that capital,
it throws off about $11,877 a year.
And that breaks down to roughly $990 a month.
Wait, hold on, let me process that.
So if you have $185,000 invested,
and it's earning a blended yield of just over 6%,
that is practically $1,000 a month in passive income.
It's basically a buffet-sized hole in your living expenses completely filled.
That completely wipes out the grocery,
utility, and internet bills we just talked about.
I mean, you even have about $85 left over for like a streaming service.
Exactly.
But the trick here, and this is where I imagine people get into trouble,
is how you achieve that 6.4% yield without blowing up your portfolio.
Right, because if you hit it with the wrong instruments,
you just erode your actual principal capital.
Precisely.
But if you hit it too conservatively, suddenly you need closer to a third of a
million dollars in capital just to get that same $900 a month.
Which isn't realistic for a lot of people.
No, it's not.
That's why building a portfolio of monthly payers is so compelling right now.
It's a massive psychological win.
You get paid every 30 days right when your bills are actually due.
So who are the heavy hitters in that space right now,
if we're building this out?
Well, there are four that really stand out in the current data
for building that moderate to high yield target.
First is the gold standard for real estate,
real-t income, ticker O.
Ah, yeah.
The monthly dividend company, right?
Did they trademark that?
They literally trademark the phrase, yeah.
They are currently yielding around five to six percent.
They own over 15,000 properties across 92 different industries,
and they have increased their dividend for over 31 consecutive years.
It's basically the definition of predictable income.
It really is.
Then you have Main Street Capital, ticker Maine.
This is a business development company or BDC.
Meaning they provide debt and equity to smaller private companies, right?
Exactly.
And they pay a monthly dividend plus special dividends.
Interestingly, Maine is down about six percent year to date.
Oh, really?
Yeah, which is setting up what analysts are viewing as a classic dip buying opportunity
for long-term income investors.
Okay, so real-t income in Main Street Capital
are sort of the foundational pieces,
but what about pushing the yield higher?
Like, to hit that 6.4 percent average,
you need some heavier hitters.
Right.
That brings us to the higher octane funds.
The firm NEOs offers two ETFs, SPYI and QQQY.
And what kind of yields are we talking about there?
Well, SPYI is yielding around 11 to 12 percent right now,
and QQQY is throwing off an eye-watering 14 percent.
A 14 percent?
Wow.
And the fascinating part is how they do it.
They utilize Section 1256 contracts to generate that income
in a highly tax-efficient way.
Okay, stop right there. Section 1256.
For the listener who doesn't have a CPA on speed dial,
how does that actually work?
It's actually quite elegant.
Normally, if you trade options,
the IRS taxes your profits based on how long you held the contract.
Right. Short-term versus long-term capital gains.
Exactly. Hold it less than a year.
You pay higher short-term taxes.
But the IRS has a special rule Section 1256
for certain broad-based index options,
like the ones SPYI and QQQYUs.
So it gets special treatment?
Yeah. Under this rule, it doesn't matter if the fund held the contract
for 10 minutes or 10 months.
The IRS automatically taxes the profits
as a blend, 60% long-term capital gains,
and 40% short-term.
Oh, I see.
So it instantly lowers the overall tax burden
compared to standard short-term trading.
Exactly.
Allowing more of that yield to actually stain your pocket.
But I mean, I have to push back hard here.
Yields of 11, 12, 14%.
It feels like a financial sugar rush.
Oh, sugar rush.
Yeah, that's a good way to put it.
It's great to get 14% from QQQI today.
But what's the catch?
Like, are we sacrificing our future
for a massive payout right now?
This raises a critical question,
and it is the exact trap many investors fall into.
We call it the compounding catch.
Compounding catch.
Yeah.
The hidden danger of high yield investing
isn't necessarily a market crash.
It's inflation and stagnant payouts.
Break that down for me.
How does that play out?
Think about yields in three tiers.
You have the conservative tier, around three to four percent.
The moderate tier, five to seven percent,
and the aggressive tier, eight to 10 percent, or higher.
Okay, track it.
And that aggressive tier, look at Aras Capital, ticker ARCC.
It's the largest publicly traded BDC.
Great company, solid yield.
But their dividend has been a flat 48 cents
a quarter for three solid years.
So the payout isn't dropping.
On the surface, that sounds like a win.
You're getting consistent cash.
It sounds like a win until you realize
that a flat dividend is like running on a treadmill
that is slowly speeding up.
Because of inflation.
Exactly.
Your paycheck is staying the exact same.
But the cost of living your groceries,
your utilities is moving faster and faster beneath your feet.
Eventually, you fall off.
Right, a flat dividend loses buying power every single year.
It does.
So you have to ask,
how do you stay ahead of the treadmill?
Well, what's the alternative then?
You contrast it with a conservative alternative,
like SHD,
the Schwab US dividend equity ETF.
Okay, the starting yield on that is much lower, right?
Much lower, around 3.7%.
But historically, the underlying companies in that fund
grow their payouts by seven to eight percent annually.
Meaning your income stream can literally double inside of a decade
without you having to add another dime of your own money.
Exactly.
And you see this exact dynamic play out in the data
we have on covered call ETFs and their dividend streets.
Oh, right, the covered call analysis.
Yeah, look at the HHL fund.
They have paid distributions for 138 consecutive months
an amazing streak.
That is impressive.
It is, but over that entire decade plus,
the distribution only grew from 5.83 cents to 6 cents.
Wow, that is less than a 3% increase over the entire lifetime of the fund.
Because the underlying assets didn't grow enough
to fuel distribution increases.
But then compare that to HTA,
the harvest tech achievers fund.
Okay, what do their numbers look like?
133 months of consecutive payments.
But their distribution grew from 5.83 cents to 16 cents.
That is a 174% lifetime increase.
Because the underlying tech stocks they were writing calls against
experienced massive organic growth.
Exactly.
If we connect this to the bigger picture,
you know, if you are an investor who relies on this income to live.
Meaning you cannot reinvest those dividends
because you need that cash to pay the electric bill.
Right, finding funds with natural organic distribution growth
is structurally critical for your financial survival.
Without growth, inflation will eventually eat you alive.
Okay, so we know we need a balance of immediate yield
and long-term growth to fight the inflation treadmill.
But it's easy to hold these funds when the market is going up.
Yeah.
What happens when the macroeconomic environment gets chaotic?
Like, what if volatility spikes?
That is where defensive dividend strategies prove their worth.
There is a newer ETF from BNY Mellon, ticker BEDY,
the enhanced dividend and income ETF.
BEDY, okay.
As of March 31st, 2026, BEDY is putting up a 30-day SCC yield
of 11.29%.
11.29%.
Wait, how are they playing defense while still offering double-digit yield?
That sounds like a contradiction.
It does, but it comes down to their mechanics.
First, they don't blindly buy high-yield stocks.
They use a proprietary computer model to rank stocks
based on intrinsic value and positive business momentum.
So they're holding fundamentally sound companies?
Right.
But the real defensive mechanism comes from how they amplify that yield.
They allocate up to 10% of the fund's assets
into equity-linked notes or ELNs.
Okay, ELNs.
I need another translation here.
Explain an equity-linked note to me like I'm five.
Think of an ELN like an insurance policy for your yield.
The fund managers at BLAY hand a chunk of cash
to a major investment bank.
Okay.
In exchange, the bank guarantees them a high fixed payout,
say that 11% based on the stock market going up over a certain period.
And if the market crashes?
BEDY's downside is capped.
They are essentially renting out a portion of their potential upside
to put a hard protective floor under your monthly dividend.
Oh, that's correct.
It allows them to squeeze extra income out of the market
without taking on massive, un- hedged equity risk.
So it's calculated diversified defense.
Now, I want to contrast BUI's very measured approach
with the absolute extreme opposite end of the spectrum.
Oh, the margin strategy.
Yeah, I was looking at the data from a YouTube creator
sharing a small count margin strategy
and the numbers are just eye-popping.
It really are.
He is holding funds like NVI,
yielding 43% annualized, CHPY,
yielding 45%, BLOX at 36%.
Right.
And his entire strategy is to take these massive dividends,
reinvest half back into the ultra high yielders
and use the other half to buy SPYI.
It's an aggressive approach to say the least.
But wait, I have to challenge this.
A fund dropping a 45% yield
while the total return of these funds combined is down 42%.
Yeah.
Isn't that just paying yourself with your own money?
It absolutely is.
This perfectly illustrates the danger of yield chasing
without understanding the underlying mechanics.
Yeah.
Yield is only one half of the total return equation.
Total return is your dividend income,
plus or minus the change in the share price.
So if a fund pays you a 45% dividend,
but the actual share price drops by 42%.
You haven't actually made any real wealth.
Your principle is decaying rapidly to fund that massive payout.
So you're basically just draining your own account.
It reinforces the critical difference between
a sustainable total return approach like B-E-I or S-C-H-D
and strategies that simply cannibalize their own capital
to maintain an illusion of high income.
Which brings us to perhaps the most fascinating
and definitely the most human part of this deep dive.
The psychology piece.
Exactly.
Whether you choose a conservative growth fund like S-C-H-D
or a defensive strategy like B-E-I-Y,
the biggest threat to your portfolio is an inflation.
It isn't the Federal Reserve.
It's you.
The investor's own psychology is always the weakest link
in any financial plan.
We have this incredible breakdown from a creator named Russ.
He's a lifelong welder who became a net worth millionaire
through dividend investing.
A great success story.
It is.
But he publicly walked through his top 10 worst trades,
the cost of his mistakes.
Nearly $48,000 in misgames.
48 grand.
And the kicker is every single one of those losses
could have been completely avoided if he had simply held the stock,
turned on dividend reinvestment, and done nothing.
What's fascinating here is looking at the why behind his mistakes
because they are incredibly common traps.
Take his Wells Fargo trade.
Right.
He sold at $40.70.
The stock is now over 75.
Why did he sell?
He got spooked by headline news about their fake account scandal.
The lesson there being that headline news is rarely new information.
By the time you, you know, the retail investor read it on your phone,
the institutional algorithms have already priced it in.
Exactly.
Or look at his IBM trade.
He sold simply because he read a highly critical short report,
which is a fundamental misunderstanding of the market.
Right.
A short report is just a thesis.
It is an argument made by someone who is financially incentivized
to see the stock go down.
It is not a verdict from a judge.
And here's where it gets really interesting.
Russ sold Eaton ticker ETN,
simply because it hit an all-time high.
Ah, yeah.
He thought he should lock in gains.
He did the exact same thing with Gilead,
sold a massive winner just to consolidate his portfolio
into a lagging position.
This highlights a behavioral finance concept
known as the disposition effect.
We have an irrational psychological desire
to sell our winners so we can feel smart and validate our choices.
While we stubbornly hold on to our losers hoping they bounce back.
Exactly.
Russ even admitted he sold Johnson and Johnson
a massive compounding winner just to fund a car purchase
simply because it was up instead of liquidating his losing positions.
And he also got caught in the option wheel trap.
I hear this term thrown around constantly
but what exactly happened there?
Well, running the wheel is an option strategy
where you sell cash secured puts to get paid while waiting to buy a stock.
Okay.
And if you get assigned the shares,
you sell covered calls against them to generate more income.
Sounds logical, but how did that cost him money?
Think of it like renting out a house you want to keep.
Imagine you agree to sell your house next month
for $300,000 and someone pays you a thousand bucks right now for that guarantee.
It sounds like free money.
Until next week the city announces a new tech hub is opening across the street
and your house is suddenly worth $400,000.
You are still legally forced to sell for $300,000.
You kept the thousand bucks but you missed out on a hundred grand and upside.
Ouch.
Yeah, that hurts.
Exactly.
Russ ran the wheel on Cisco and JP Morgan
and his shares got called away.
He was forced to sell right before massive market rallies.
The worst timing.
He missed out on nearly $20,000 in JP Morgan gains alone
because his upside was completely capped.
Never run the wheel on positions you would be devastated to lose.
So the ultimate investing skill is sitting on your hands
and letting compounding do the heavy lifting?
Exactly.
But I mean, it's easy for Russ to sit on his hands when a stock is boring.
What happens to that do nothing psychology when the company you own
is suddenly making massive controversial headlines?
That's a very different test.
Right.
This leads us perfectly into testing this theory in real time.
Let's look at the raging debate around Altria.
Take your MOA.
Altria is the perfect stress test for the do nothing philosophy
because the narratives are so polarized right now.
Let's start with the bull case.
On one side you have the bull case.
The stock has rallied 28% year-to-date.
Their first quarter, 2026 earnings per share are up 7%.
But didn't cigarette volumes decline?
Yes, volume declined 4%.
But their massive pricing power completely offset it,
meaning operating incomes still grew.
Plus their on nicotine pouches saw shipments surge 18%.
So it is a dividend king with a 5.7% yield
and massive free cash flow.
Right. But then you have the bear case which is just as loud.
What are they saying?
The core cigarette business is in an undeniable structural decline.
Eventually volume drops will outpace their ability to raise prices.
And what about the on pouches?
They are growing, sure.
But Philip Morris' zin pouches have four times the volume.
Plus you have massive regulatory headaches.
70% of the vape market is illicit.
And Altria has lost billions on the jewel disaster and patent disputes with NJ OY.
It is a fundamentally shifting landscape.
Now what's amazing is going back to Russ, our millionaire welder,
he actually sold Altria at $45 a share and missed out on the entire run up to 68.
Wait, really?
Yeah. But he said it was the only trade out of his top 10 mistakes that he did not regret.
Interesting.
Why?
Because he sold on personal ethical principles.
He just decided he didn't want to own a tobacco company anymore.
Which is completely fair.
And honestly, values-based investing is entirely valid.
We're not taking a side on the tobacco debate here.
But knowing your personal boundaries makes walking away from a profitable trade much easier to stomach.
That's a great point.
So if we aren't buying Altria and we are looking for places to park capital and do nothing for a decade,
where do we look?
I'm guessing you have some data on that.
I do.
If we want to know what works, we should look at what political insiders are doing with their own money right now.
Looking at recent congressional trading disclosures, the trend is very revealing.
Let me guess they are piling into whatever the latest hyped up AI stock is.
Not at all.
The smartest money in Congress is targeting exceptionally high-quality businesses that have experienced
meaningful pullbacks.
It's a return to classic value investing.
Okay, can we see some examples?
They are buying S&P Global, ticker, SPGI.
It's down 20% year-to-date.
A DCF or Discounted Cash Flow Analysis suggests the stock has a 24% margin of safety at current
prices.
Okay, explain DCF for me really quickly because that term gets thrown around a lot.
Discounted Cash Flow is essentially a financial time machine.
I like the sound of that.
You look at a business like S&P Global and estimate how much total cash is this company going to
generate over the next 10 years.
Okay.
Then because a dollar tomorrow is worth less than a dollar today, thanks to inflation,
you discount all that future cash back to what is worth today.
Got it.
If the stock market is selling the company for significantly less than that calculated value,
you have a margin of safety.
You are buying a dollar for 76 cents.
Oh, that makes perfect sense.
What else are they buying?
They are buying American Express, ticker AXP, down 15% recently.
The profitability is stellar and, again, the DCF suggests the intrinsic value is closer
to $400 while it's trading near $316.
Any other big names?
They are even buying McDonald's.
It's been trading near a 52-week low, pushing its dividend yield to 2.7%,
which is historically one of its highest yields ever.
So what does this all mean if we put it all together?
Let's recap the journey we just took.
We started by proving the math.
A $185,000 portfolio can essentially cover your baseline monthly survival.
But we saw that navigating the trap of flat yields versus compounding growth is critical,
because a stagnant payout is a treadmill you will eventually fall off of.
Exactly.
We looked at how to utilize defensive structures,
like the B-D-Y-E-T-F, using equity-linked notes as an insurance policy to protect that income.
Rather than chasing destructive 45% yields that just eat your own capital.
And most importantly, we explored the psychological fortitude required to simply hold your winners.
Learning from the costly mistakes of a millionaire who couldn't sit still when faced with short reports,
all-time highs, or the capped upside of the option wheel.
Which leads me with a final, slightly uncomfortable thought for you to mull over.
What's that?
We spend so much time analyzing what to buy.
We screen yields, we track congressional disclosures,
we debate the macroeconomic environment.
From its endless.
But if the data across all these sources proves that the absolute hardest,
yet most consistently profitable strategy is simply doing nothing.
Is it possible that the absolute best thing you could do for your portfolio right now
is to buy a great, compounding dividend fund,
and then intentionally lose your brokerage password for the next five years?
That is a very provocative thought.
Because building the pipes for your financial plumbing is easy.
Resisting the urge to tinker with the machine once the water is flowing?
That is the real challenge.
Thank you for joining us on this deep dive.
Keep questioning, keep learning, and enjoy the compound interest.