In this episode of the Gold Exchange Podcast, Ben Nadelstein sits down with Samuel Smith, the High-Yield Investor on Seeking Alpha, to uncover why most people fall for dividend traps and how smart investors create lasting income through stable, cash-flowing dividend producing assets.
From REITs and BDCs to gold with yield, Samuel explains how to separate genuine opportunity from risky illusion — and why the secret to financial freedom isn’t chasing the biggest return, but mastering the psychology of consistency.
If you want to learn how to turn volatility into opportunity — and income into independence — this episode is for you.
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Follow Samuel Smith on X: @SamuelDividends
Additional Resources
Earn a yield on gold, paid in gold
Transcript
Monetary Metals:
Welcome back to the Gold Exchange podcast. My name is Ben Nadelstein of Monetary Metals. I am joined by our good friend, Samuel Smith. Sam writes as the high yield investor and leads the highest ranked investing group on Seeking Alpha. If you haven’t already subscribed to his YouTube channel, Samuel Smith Dividend Investing, you have to. Right now, you can even pause this video, but let’s dive right in. Sam, what is dividend investing for those who don’t know? How does it differ from other investing strategies?
Samuel Smith:
Yeah, well, thanks for having me on, Ben. Always good to be with you on Monetary Metals. So really, dividend investing boils down to just investing in stocks that pay a dividend, which is a cash payment portion of the company’s profits that they typically distribute to shareholders.
Some do it monthly, some do it quarterly, some do it semi-annually, some do it annually, some even just do it periodically, depending on the state of the business. So it’s really just focusing on companies that deliver a payment, a yield back to the shareholder, instead of simply hoping that the stock price will go up over time. And of course, there are many stocks that don’t pay a dividend. And so there is a selective universe that you tend to focus on when you’re a dividend investor.
Monetary Metals:
What is it about dividend investing that’s different than these usual buy and hold strategies that you hear about, Hey, buy some index, forget about it, wake up 60 years later, boom, you’re a millionaire. What is the difference between dividend investing as a strategy and more buy and hold, or maybe even the Warren Buffett approach to investing?
Samuel Smith:
Yeah, I think there are different ways to approach dividend investing, I think, can impact that. For one, for many retirees, for example, they want to be able to, if they say, sleep well at night or not worry about market volatility, and they just want to be able to know that they’re going to have stable cash flow income through their retirement years to be able to fund their living expenses. If you’re betting on an index fund that pays very little or no dividend yield, you’re going to have to gradually sell off your shares to fund your living expenses.
Whereas with the dividend investment approach, if you have a high enough yield from your portfolio, but it’s still not too high that you’re taking on too much risk, if you’re getting that happy medium, then you could just live off your dividends and you never have to really worry about selling shares. Therefore, you really don’t really have to worry at all about market volatility.
You can just sleep well, collect dividends, and let the good times roll. From a retiree’s perspective, to me, That’s the big advantage of dividend investing. It really creates a more stable sequence of returns, less susceptibility to maybe the market crashing and then going through a lost decade where your retirement plans are just dashed.
Whereas with dividends, you don’t really care too much about that. Obviously, you still want your portfolio to go up in value over time. If you invest in good dividend stocks, it will. That’s the beauty of it. You’re not necessarily giving up total returns, but you’re also creating that more stable sequence of returns. Now, for people like you and me that are not in retirement when you’re on the verge of retirement, dividend investing still has an important place in a portfolio. In fact, that’s why I do dividend investing.
But I take a different approach to it rather than just buying a dividend ETF or somebody just buying 30 or 50 quality dividend growth stocks and just letting them ride. I actively manage my portfolio, and I think that someone who follows, for example, Warren Buffet’s value investing approach, dividend investing can be a really good way to go about that. Because Warren Buffett’s approach is all about investing what you know, and really what that boils down to is stocks that you can value with a fairly high degree of certainty. In other words, your error rate in valuing a stock is quite low, especially to the case of overvalued, thinking it’s worth more than it really is.
Obviously, if you think a stock is worth less than it is, sure, you may sell it too soon, but you’re not going to go broke. You’re still going to do quite well that way. But if you think a stock is worth more than it really is, then that’s how you get really burned.
Dividend investing, generally, stocks that pay high dividend yields and consistently pay out those dividends in their quality businesses, obviously, you got to make sure they have a good durable defensive business model and a strong balance sheet, as well as a very sustainable dividend. If you can do that, they’re generally much easier to value than, say, a Palantir.
That is not really that profitable. It’s becoming more profitable, but it’s really just the valuation is so far detached from the fundamentals that you’re really betting that it’s going to grow at an incredibly high rate for a long time to come to justify the current valuation, or you’re just playing a pure speculation game and hoping that the greater fool theory, someone else will buy it from you for more than you’re buying it with. Or even Bitcoin, for example, it’s hard to know.
I understand this audience, probably there’s a very mixed view of Bitcoin. And I myself, disclosure, I have a little bit a small speculative position. I have more with Monetary Metals than Bitcoin. But just because there are a lot of different variables, we don’t know where a Bitcoin could go. It’s much harder to value it. Whereas dividend stocks. If it’s paying a stock, for example, like enterprise products partners, it’s a pipeline company, has long-duration contracts for most of its cash flows, generates a very consistent cash flow stream through all sorts of economic environments.
It pays out a seven % dividend yield, or technically it’s called the distribution in their case. And so it really doesn’t need to generate a ton of growth on top of that to still deliver a satisfactory equity like 10 to 15 % annualized return. And because of their growth pipeline, which is all fully contracted as it comes online, they have a predictable growth profile.
And so with a stock like that, you can have a fairly high degree of certainty what it’s worth. And so I’m trying to build towards here is that that enables you to buy and sell those stocks opportunistically with a high degree of confidence that, okay, I’m selling it near its fair value or I’m buying it at a material discount to its fair value.
And of course, you’re still going to get some wrong. And that’s where diversification comes into play. And so I run a portfolio, generally around 25 stocks at a time that I have pretty high conviction in. And sure, some of them are losers, but the vast majority are winners.
And through my opportunistic capital recycling, I can turn what would normally be if I just bought and held the stock, maybe a 10 % annualized return, I can turn that into a 15 to 20 % annualized rate of return, which is what I’ve been able to do at High Yield Investor for the past five years now since we launched. I myself have done that for quite a few years beyond that.
I’ve not only beaten the high yield space by about two to one over that period of time, but I’ve actually beaten S&P 500, even though S&P 500 is getting fueled by all these big mega cap tech stocks that I have completely missed out on because of my approach. Then, of course, I hold as many of those stocks as I can in my IRA, so that also helps protect me against the tax implications of selling.
And generally, I’ll hold the stocks in my taxable side of the account in things that are more tax-advantaged, for example, MLPs, like enterprise products partners. It has a special tax benefit its distribution. So that’s generally my approach, and that’s what I would suggest for someone who wants to take the dividend investment approach as someone in their 30s like I am.
Whereas if you’re in retirement, you can do that, too. But maybe you don’t want to do that. You don’t want to think as hard, you don’t want to be spending time monitoring your portfolio, or even if you don’t want to subscribe to research and you just want to fish all day and you don’t really care about hitting home runs, you just want that dividend income there, then yeah, I would say go with a low-cost dividend ETF. There are a number of those out there that are great, and that can help reduce your sequence of returns risk.
Monetary Metals:
I want you to discuss something you mentioned earlier in our conversation, which is you see this high yield, and sometimes that’s a yield trap. Other times, no, this is genuinely a good company. They’re just offering a great dividend. How can investors think about this difference between, wow, that’s an incredible yield, and it’s like, yeah, that’s where the risk comes in, versus, no, this is a high yield, and this has a genuine return that isn’t as risky as maybe the number seems at first glance?
Samuel Smith:
Yeah, it’s a great question, and that’s really the million dollar question, so to speak, when it comes with investing in high yielding stocks. The first thing you need to do is really understand what type of company is this? So companies like business development companies, real estate investment trusts, midstream, especially master limited partnerships, those stocks generally typically have a higher yield.
An easy way to do this is just look at an ETF for that sector and compare the yield of the stock to that ETF yield. If it’s within a a couple of hundred basis points in either direction, well, obviously above it because you’re looking at the high yield, is it at risk? If it’s only a couple of hundred basis points higher or closer to it, it’s probably not some crazy outlier high, high risk yield.
Now, but if it is, there are other sectors where there have been high yields. For example, United Parts Services is an example. It’s a well-known logistics business, UPS Trucks. Of course, everyone knows about those. It currently offers a really high dividend yield And historically, it has not. Other logistics businesses typically don’t offer yields quite that high.
And so that should be a yellow flag that, Hey, I need to do more research here. But if it’s a business development company or an MLP, like enterprise Products Partners, for example, has a 7% yield. Well, if you look at the Allerian MLP ETF, which is the sector proxy, it has an 8% yield, so it’s actually below it. So there it’s like, Okay, that’s actually probably not a crazy high risk yield.
In fact, enterprise Products Partners is one of the lowest risk MLPs out there. That’s the biggest thing is what sector is it in? Then from there, you can look into the underlying fundamentals. How strong is the balance sheet? Is it at a point where the company is going to have to choose soon between preserving its investment rate credit rating or cutting its distribution.
To me, the vast majority of really painful dividend cuts have come from that angle, where the balance sheet has gotten really overstretched and the company has had to make a choice. If they’re smart, they will always choose the balance sheet, and then the dividend tumbles and the stock often falls shortly thereafter. That’s the next thing I would check.
The third thing you want to check is the business model itself. Is it on durable footing? For example, a number of years ago, we had a bunch of mall REITs that looked super cheap. They were generating a lot of cash flow. Their balance sheets were in okay shape.
They had these sky high dividend yields that were seemingly very well covered by cash flow. But the big thing that a lot of investors who sadly got sucked into those stocks was that the underlying business model was not durable, that they were lower class malls, Class B, Class C malls that were getting disrupted by Amazon. And then, of course, COVID hit, and that was the death blow to them. Who knows if they would have, some of them would have survived if it hadn’t been for COVID.
But regardless, they were very susceptible and only the best Class A malls that some reach like Simon Property Group and Mace Rich, and Brookfield owns a bunch as well. Those have survived, and actually many of them have done well. They’ve been able to transform themselves, and they have high density, high income population centers. They’ve been able to survive, but the lower quality ones are gone.
And so that’s a case where you also want to look at the business model. Is it also being disrupted? And along with that, you also want to look at maybe the business model is fine over the long term, but maybe it’s a very cyclical business model.
And so it’s just going through a downturn right now. And many times with cyclical stocks, the business is fine, the balance sheet is fine. It’s fine. But because the earnings are so volatile, oftentimes the earnings are plummeting, the stock price will also plummet because it’s out of favor. And so the yield gets bloomed.
And many of those cyclical companies end up cutting their dividends during down cycles and then rebuilding them through the up cycle. So that’s something else to keep in mind. With cyclicals, I generally just to be, unless I have a really high conviction in the thesis, for example, gold mining stocks are a bit cyclical. I try to just only invest in them when they’re out of favor. But even then you have to be careful because timing the bottom is very hard. But that’s the other thing to look at. Is it a cyclical business or is it more of a defensive, stable business?
If you really want to avoid dividend cuts like the flag, stay away from cyclicals and just focus on the more stable triple net lease REIT or infrastructure, et cetera type of businesses.
Monetary Metals:
I do have a question about these. Maybe some people either know about or invest in these triple net leases. This is usually a real estate. There’s also mall REITs specific to malls. Is there a difference in dividend stocks that are more like REITs that have a real underlying business like a real estate company versus maybe a growth rate where there’s a business attached, it’s growing, it’s paying a dividend, maybe it’s a Facebook who says, You know what?
Today we’re paying a dividend. Is there a way that investors should think about the difference between maybe a real estate-based dividend payer versus a more usual stock-based dividend payer? Is there much of a difference in the analysis there?
Samuel Smith:
Well, again, it depends on what you mean by the other company, because there are even some companies that don’t have real assets underpinning their business that still pay out very stable earnings stream. A great example of this is like an asset manager here, especially in the alternative asset management space. They generally have long dated funds that can’t be liquidated for many years into the future or even at all. In some cases, they manage permanent capital vehicles. Those are typically publicly traded so that you can still get liquidated liquidity, but the manager, their capital is fixed.
And those generate a very stable earnings stream, even though they don’t technically they have very asset light balance sheets. So I think more than the real asset, as far as the sustainability of the dividend, rather than focusing, is it real asset or not, I think it’s better to focus on what is the nature of the earnings stream. The same can be said for BDCs. They technically just invest in loans to middle market companies, but they’re often, obviously, they’re contractual. They’re debt. They’re typically senior in the capital stack. And so As long as it’s a good manager who underwrites effectively, that’s a pretty stable earning stream as well.
That’s what I would look at as far as the dividend. But I would also say that real asset businesses do have some things going for them. Namely, one, there’s the inflation component that generally real asset businesses over the long term hold up much better relative to inflation than cash-focused denominated businesses like BDCs or asset managers, all else being equal, of course.
There are many other considerations there. Also, So real asset businesses, especially real estate companies, generally, it’s much harder for them to go bankrupt because even though they do often have more leverage than asset light businesses, the real asset component means that they have It’s much easier for them to access capital. So for example, with a lot of real asset businesses, especially REITs, they often have two layers of debt on their balance sheet.
They have corporate level debt, which is just unsecured bonds that they issue against their entire Corporation. But then they also can do what they call non-recourse debt that’s often held at the asset level. We would know it as a mortgage in most cases. That’s just debt at the asset level. If that asset, say it’s a portfolio, say, of 200 properties, and let’s just say they’re single tenant and net lease properties to restaurants, just for example.
Let’s say three of those restaurants go out of business and they default on their leases, and it’s to the point and those have mortgages on them. Then at least, Reid has the option of just saying, Hey, I’m going to hand those three properties back to the lender, to the bank or whoever has that mortgage, and they’re wiped off my balance sheet.
Sure, I lost the property, but my equity share of it was maybe not that big. That’s not a cash flow drain on the rest of the portfolio, and that debt gets jettisoned off with the property. That’s a risk mitigation technique that they can use.
Or alternatively, if they’re having a hard time meeting their corporate debt obligations because maybe they over leverage that and their business is declining, they can sell off individual properties much more easily than, say, a business can sell itself or a portion of itself because of the divisibility of the properties and the popularity of them, the value of them, or they can even mortgage individual properties to raise proceeds to meet their corporate obligations. It gives them much more financial flexibility than some other business models that are more chunky and less real asset heavy would face.
Monetary Metals:
Okay, here’s a more broader macro question for you. In the dividend space, how has the long term decline in interest rates shaped dividend investing? And more recently, we’ve seen a spike in interest rates. So how has that changed or altered the investing landscape for these yield investors?
Samuel Smith:
It’s really important to It’s an important consideration. I would say a couple of things. First of all, I don’t think it’s purely to the dividend space. I think it’s across equity markets in general. This long term decline in interest rates has honestly robbed or it’s pulled It’s a pull forward return. It’s really pushed, shifted wealth to the asset owners of many decades ago.
Really, the generation before ours, you could say the so-called boomer generation, has really profited from that. It’s been a massive wealth transfer that they pulled forward wealth, that along with all the government borrowing and everything else that goes on, they’ve really pulled forward wealth from our generation and even future generations to those individuals.
It’s also It created a false sense of confidence, overconfidence in the markets because when interest rates fall, asset prices tend to rise. And so that’s created a mindset among a lot of investors to expect these really incredible returns that nothing, stuff always goes up. The Fed always bails us out with a cut, and always buy the debt type of mentality. And so that’s, I think, a consequence of it. That’s affected everyone, not just the dividend space.
But I think a particular more bond proxy type sectors, like certain types of REITs, for for example, like triple net lease is a great example of this. I think a great case study is realty income. It’s a very popular dividend stock. It’s known as the Monthly Dividend Company.
Actually, they’ve trademarked that name. They have a tremendous track record since going public in the early 1990s of growing their dividend year after year after year through all sorts of situations, the dot com boom and bust, the ’08 financial crisis, COVID, et cetera. They continue to grow their dividend every year at a very stable rate. They’ve maintained remarkably high occupancy. It’s a very well-run company. They have an A minus credit rating, so pretty solid balance sheet.
Over 15,000 individual properties now spread across the world, a huge real estate empire. They still have an attractive dividend today. A yield is over 5 %. So it’s a very popular stock with retirees. But if you look at their total return performance, they had an incredible total return run up until really just the last half decade or so. And with interest rates troughing and rebounding sharply, that’s really weighed on their total returns because they’re a bond proxy.
Because they’re long-duration triple net lease contracts, it’s a bond-like stream of income, especially when combined with the strong balance sheet and the broad diversification. It’s one of the surest dividends out there in the market. And so retirees view it as, Oh, it’s like buying an investment-grade bond, but I also get that dividend growth that helps offset inflation and keeps the purchasing power of my income stream intact. And so with interest rates rising,
That has now the market demands a higher yield from that stock because they could buy bonds at a higher yield as well. And so the stock prices come down. And not only has that weight on the total returns, just in the sense of the stock prices coming down, but it’s actually hurt their growth because realty income’s model is really predicated on this idea that they pay out the vast majority of their cash flows as dividends to shareholders.
And because of their ability to pay that dividend and the consistency of it every month, the strong portfolio they have, the idea is, okay, the value of this company is greater than the sum of its parts. It’s typically commanded a premium value for the stock relative to the private market value of the underlying real estate.
They can issue new shares regularly at a premium to what they call the net asset value of those shares, and then reinvest the proceeds along with some debt to buy additional properties to grow the portfolio and thereby increase the cash flows per share and thereby grow the dividend per share.
But with the headwinds that they faced recently, their premium NAV has actually gone away in some cases or it’s gotten very thin. And so issuing new shares is not as accretive for them. And so their growth rate has slowed as a result. And so that starts a vicious cycle for them. So that’s, I think, a great case study for how rising interest rates, the shift from falling to rising, especially on the long end of the curve, has really impacted certain dividend stocks.
But others that are less dependent on capital markets, it hasn’t really impacted their fundamental performance as much.
Monetary Metals:
Would What do you think about this rate regime that we’re currently in? Obviously, there was a rate cut recently. Do you think that we’re basically heading for more rate cuts back towards the zero interest rate environment, where slowly every month or every year, rates fall and fall and fall until we’re back towards something like zero? Or do you think this higher rate environment is something that’s a bit more sticky, and we’re in a higher for longer camp, but for good?
Samuel Smith:
That’s a really good question. I think certainly the administration’s desire, the Trump administration’s desire, is to get interest rates down. That’s primarily for two reasons. One, they know that has a stimulant effect on the economy, and two, they want to bring the budget deficit under control.
Again, this is a self-reinforcing loop that lower interest rates which means lower deficits, which means greater confidence in the US government and less bond issuance, so therefore less upper pressure on interest rates in the bond market and so on and so forth.
The opposite is true. Higher interest rates, higher deficits, more bond issuance, less confidence, and then that is a vicious cycle. They’re very aware of that, and so they’re really trying to bring them down, or at least that’s what they say they are. Certainly, with the upcoming replacement of Powell, they already put one person on the board. They’re trying to force out another board member and try to get more people who are supportive of their goals on the Fed. The issue is, of course, the Fed only controls the short-end curve, and so I think they’re going to try to bring rates down. The only problem is going to be what happens on the long-end of the curve.
That’s ultimately, I think, going to It’s going to be determined by a couple of things. First of all, inflation data. Second of all, government spending, which I know is somewhat related to where rates are, but there are other factors as well. Third, it’s going to depend a lot on the state of the global economic order. What I mean by that is the de-dollarization trend that’s going on.
That’s part of what’s hurting interest rates. That’s the big reason why gold is soaring so much is that you have all these central banks led by people like China and their broader BRICs community who are trying to undermine the US economically. A big way they’re doing that is attacking the dollars reserve currency status. They’re dumping their dollars.
This is partly catalyzed by what happened to Russia after their invasion of Ukraine in 2022. Two, but there are other factors at play, including just the runaway deficit spending of the US, the depletion of the US manufacturing sector, etc. And they’re gradually, or even in some cases, rapidly depleting their dollar reserves and replacing with alternatives, including, in many cases, especially gold.
And so as long as that trend continues, especially as long as it’s accelerating, that’s going to lead to a greater pressure on interest rates on treasuries, because these treasuries are getting dumped or at the very least, they’re not being renewed once they mature.
And so they’re going to have to make up that up somewhere else. And the only way to do that is to increase the… The market is going to demand a higher yield to attract more investors from other alternatives to meet up with that. And Now, of course, on the inflation piece, that’s also important because not only does the market take that into account when it determines what the long term rate should be, but also it removes flexibility from the Fed because the Fed has traditionally been buying, at least in recent years, long term bonds to try to keep interest rates down.
But if it can’t do that, which it hasn’t, it’s actually been unwinding its balance sheet recently because inflation is too high, because that’s effectively, they’re creating money when they do that, then obviously that’s one less source of potential buyers for these bonds as well. So all these factors work in combination. It’s hard to know exactly what’s going to happen.
I would say the biggest unknown is the international situation. I think I’m, sadly, you could say, confident or maybe pessimistic, that deficit spending is going to continue. I don’t see any either party or any major politician outside of perhaps Senator Rand Paul and Congressman Thomas Massey as really having the backbone to say, enough is enough.
We need to stop spending. It’s going to take some calamity to cause people to get religion about that. Unfortunately, by then, it’s going to be too late. The only real hope on the deficit situation is if other circumstances combine to bring down long-term interest rates, that will help. If these tariffs can continue, both legally, politically, and economically maybe they can be supported and they can bring in enough revenue to make a dent.
Then perhaps if AI can deliver on its promise, both from a deflationary standpoint as well as an economic growth standpoint, perhaps that will, again, allow interest rates to move lower while also bringing in additional revenue through economic growth. Perhaps all those things can combine.
If we can avoid a major global war, which would obviously spike the deficit for other reasons, if all those things can work out, perhaps we can get the deficit at least to a point where it’s so-called sustainable and that our economy is growing at a pace that’s equal to it or greater than it, then perhaps we’re okay for a while at least. But ultimately, I’m not too positive. I think we’re playing a game of Russian roulette here in a best-case scenario.
In a worst-case scenario, we’re playing an outright game of suicide economically. That’s my view on that. It’s not exactly maybe what people want to hear, but that’s my honest view.
Monetary Metals:
Well, let’s take a potentially positive case, which is we have this AI revolution. We We have these chip manufacturers. We have all this growth in the United States with these stocks that are focused on AI as well as a new machine learning revolution where we can not only revolutionize new businesses and create new opportunities, but we’ll go back and fix all those old businesses that don’t have computers or haven’t figured out how to use machine learning.
Where do you see this argument? Is this AI a bubble, a thesis that is going to look back on and go, What the heck were we thinking? Or do you think that AI is actually going to help the stock, help the stock market, help these growth sectors, and maybe even help dividend payers as well?
Samuel Smith:
Yeah, I think that’s a great question. I am bullish on AI’s potential. I actually have a master’s degree in machine learning. Obviously, I do believe in it to some degree. I think there’s a lot of economic value that can be created and even already is being created to some degree. I would say, yes, long term, I do see AI being quite transformative. I see it creating a lot of wealth for the economy, and I do see it being deflationary to some degree.
Again, back to my previous statement, I just see the government spending as being such an avalanche, such a tsunami with all the geopolitical factors. I just don’t know if it’s enough. But back to the AI bubble question. That’s a separate question, too, because you have valuations on the one hand and you have performance and potential on the other. I see it probably at this point somewhat similar to the Internet bubble of the 1990s.
Perhaps not quite as crazy, just because we do have some real primetime tech companies That are deep pockets that are firmly established. These aren’t just all upstarts that have no profits. So I don’t see it maybe quite as severe as that, but I do see elements of that type of bubble, irrational exuberance.
And what I really see it is probably pretty mature excitement. So I think people are pricing in the future, and I think that future is coming. But I don’t necessarily expect the profits, especially on the end user side of things, to to be apparent, the benefits, the return on investment, to be apparent as quickly as current valuations demand that they be.
And I also see a big bifurcation in the marketplace where you have these AI infrastructure plays like NVIDIA and even the LLM, companies like Meta, Alphabets. Sorry, Meta Alphabets. And what’s the third one? Microsoft. Yeah, Microsoft. Yeah, with Open AI. And then, of course, even some of the applications, Tesla Obviously, they do through Brock, which is a proxy. There’s some connection there, but obviously they’re big into robotics and autonomous driving technology.
And then even some of these other companies like Amazon and Apple that are certainly AI adjacent and certainly incorporating a lot of it into their products. Those are all getting bid up pretty aggressively by the market, some more than others. Amazon and Apple, perhaps, are a bit of laggards there because they’re not in the forefront of the LLMs or the chips like NVIDIA and AMD and a few others.
Obviously, those companies are getting bid up as leaders, and I understand that. But my view is that if that becomes what the market is pricing it to become, which is namely a dominant transformative technology that’s going to permeate not only the economy, but society and our military and our government and really everything. Then I think we need to also start considering what are some of these companies that are currently consumer products companies, and industrials, et cetera, that are going to be implementing these AI technologies and which ones are best positioned to benefit from that.
And I think that’s something that the market really hasn’t asked yet. In fact, they’re pricing these companies like they’re not going to get any benefit from the AI boom. If you want to see what I’m talking about, just look at the performance of the Schwab US Dividend Equity ETF over the past two years and compare it to the performance of these mega-cap tech stocks. And you will see a huge bifurcation of performance That illustrates the point I’m making. I’m not saying that these companies are all going to prosper or they need to be bid up just like these other ones, but I’m not seeing any benefit being priced in.
And even there are some energy infrastructure companies. Some have gotten bid up a lot, but some that are very… They stand to benefit. They’re very well positioned to benefit the AI boom. They haven’t really gotten bid up very much either. These are the opportunities I’m seeing as an investor to allocate capital right now because I see it as, well, if the AI boom really lives up to the hype. These companies likely deserve a much higher multiple than they’re getting today.
If the AI boom crashes and burns, these companies are still profitable. They have good businesses. Some of them are highly contracted cash flows. They should be just fine. They’re certainly going to outperform these high fliers that the market is betting on a really rosy future for AI. I see the risk reward as being most attractive in those. Yes, obviously, I’m pessimistic overall, and perhaps I should have just gone all in on gold, which I was half-tested to do a couple of years ago, and I probably would be much better off. But I’m a young guy. I’ve got kids, and so I don’t want to just assume that we’re all heading to a bunker in economic winter here.
Part of me is like, Hey, I do want to bet on an optimistic future. That’s where the dividend side of my portfolio comes in. I’m the first to admit, I am not omniscient. I hope I’m wrong, and there’s a very good chance I am wrong because there are many times throughout history, even World War II, that was a pretty bad scenario. If you were investing in the S&P before then, until today, you would have done very well. I don’t want to be total gloom and doom there. That’s where I’m seeing a lot of opportunities on the more optimistic side of the scenario in today’s market.
Monetary Metals:
Sam, let’s now pivot to gold. Obviously, gold has had an incredible price rise recently. We’ve seen almost a doubling depending on your time frame. And this gold bull market is really continuing. We’re hitting all time highs. It feels like every single day. So talk to me about your gold investing thesis. And of course, with Monetary Metals, you’re getting a yield on gold. So tell me how that factors into your overall yield paying thesis.
Samuel Smith:
Yeah. I mean, I really love the thesis and the profile for Monetary Metals investments, because you own the bullion, and so there’s more of a real asset sense there than you would with an ETF. Because with an ETF, sure, you have that easy liquidity, which is nice. But to ultimately capture value from that investment, you have to convert it to dollars.
Whereas with owning bullion, you’re off the dollar standard. You have something that is increasing, not only historically, but it’s actually increasingly being accepted worldwide by institutions and individuals as a store of value, even potentially as a medium of exchange. And so you’re completely liberated with those holdings from the threat of a dollar collapse. And so I really like that aspect. Also, as just something you can pass on for generations, as you don’t have to pay tax on it if you never sell it.
And so you can just pass it on and the cost basis goes up to your kids. And so that’s also a benefit. But then obviously the yield component, it really makes it like investing in a rental property and basically with a property manager because Monetary Metals handles the leases.
You get nice diversification. It’s like investing in a REIT, basically, except you actually own it. So it’s the best of both worlds of a REIT as well as investing in a rental property. You get that diversification, but you actually own the real asset instead of just paper shares in a company that you have to sell and turn into dollars to realize value from. And so it’s the best of both worlds there, which I really like.
And as we’ve seen the last few years with the rapid rise and the gold price, in dollar terms, if you were to sell your gold income to live off, say if you’re a retiree or whatever, you’re getting effectively a massive dividend increase as the price of gold or silver soars. And so that’s another really awesome aspect of it that I like. It’s not just, hey, you get 4% in dollars based on your initial purchase or the initial value of gold when you entered the lease.
Now you’re getting 4% or whatever, 3% or whatever the lease yield is on your ounces of gold over the course of the lease. And so that inherent inflation protection, that debasement protection really makes it an incredibly valuable member of a dividend portfolio because you’re getting much less risk.
You can compare it to say gold miners, which obviously some of them pay dividends. I’ve invested pretty aggressively in gold miners the past few years. And over the past year, I’ve actually been at High Yield Investor. We’ve been selling off some of our gold holdings as they sort gold mining holdings and converting those positions into leases at monetary metals.
Because over the long term, if you compare, say, GDX, which is a popular gold miner ETF, to the performance of gold, and that’s even with an expense ratio charge and not counting the yield. Gold GLD, for for example, outperforms GDX significantly over the long term. And that’s, again, not counting the yield plus the lack of negative yield you’re paying for the expense ratio.
And so Monetary Metals from a long term risk adjusted standpoint, I really like compared to GDX. And especially gold miners are very volatile. So when they’re out of favor and clearly lag in gold like they were early this year, I was piling heavily in the miners. But I view that more of as a cyclical trade, back to what I was saying earlier in our conversation about cyclicals, whereas I I view bullion as more of that durable, defensive, long term compounder, especially when there’s a lease aspect to it with yield.
So that’s how I approach managing my portfolio. When it goes in monetary metals, that’s long term buy and hold. Gold miners is more my It’s an over-term trade. Then another point where I really like that monetary metals is even just from a risk-adjusted standpoint, you can compare the performance of gold to the S&P 500. Depending on your starting point, one looks better than the other. I know many will say, Oh, well, S&P 500 is better on most time frames. Okay.
And there’s growth component. It generates cash. It’s a productive asset. Gold just sits there. Fine. But with monetary metals, that changes the game. You get the yield, it’s a productive asset.
And we also have to remember that when you’re looking back on, say, the last 10, 20, 30 years or whatever, for the most part, yes, there have been some macro calamities, but there haven’t been any major world wars. There hasn’t been a nuclear war. There hasn’t been a dollar collapse.
The US economy has grown, has prospered. The global order, so to speak, has held together. And so that’s created a bit of an artificial boost to equities, whereas an artificial, you could say, artificial headwind to gold.
Whereas over the full spectrum of time, history has shown that empires and societies rise and collapse currencies inevitably go to zero. And so, yes, I know what Warren Buffet says about never bet against the US. And I agree maybe over the epoch of US prosperity for the most part, that holds true. But over the course of all of history, that isn’t a good approach.
You need something that’s going to be able to survive from one empire to another, from the collapse of one currency to the other. And sure, some companies might survive, maybe, especially maybe well-managed, low-leveraged real asset companies, perhaps.
But I think there’s nothing better than gold that this history has shown is something that will span empires and span millennia, even. So I think, again, we don’t know when the US Empire, so to speak, is going to collapse, when the economic system is going to crash and burn.
But we can hold to it with a high degree of certainty that gold is still going to be valued when that happens. And so, again, I think that’s just another argument for why when you compare gold’s historical returns to, say, the S&P 500, you need to account for that as a handicap for gold as a risk adjusted factor that’s not being accounted for in those metrics.
And It’s just as an argument to say, this is why regardless, people ask me today, is it too late to buy gold? Well, how much do you currently have? Would be my question and response.
If you already have a lot of gold in your portfolio and you see other attractive opportunities, okay, perhaps not. But if you don’t have much gold or don’t hold any at all, I really think there’s no price of gold that’s too high in dollar terms to have at least some gold exposure for the reasons that I just mentioned.
Monetary Metals:
I do think that’s a really important point to remember, which is that if gold is beating the S&P 500, depending on your time frame, they’re going back and forth, but it’s clearly competitive. Plus, you add maybe a yield to gold at 4%, then it maybe runs away with it.
But to your point, which might be even more important, which is that we are living an unprecedented peaceful times where stock markets, global trade, they all benefit from this Pax Americana with world peace, a strong dollar reserve currency. If any of those things, whether it’s economic collapse, whether it’s more global tension, whether it’s just, you know, tariffs that break down global trade.
Gold is an asset that stood the test of time for 5,000 years rather than maybe an American order or a dollar that’s lasted less than 500. As we come to the end of our interview, I want to hit on a rapid fire question round. These will be quick questions, and you can answer as quick or as short as you want. First, what is your evaluation technique? Are you a fundamental type person? What do you look at when you’re evaluating stocks?
Samuel Smith:
Yeah, 100%. I focus on the fundamentals of the company and the valuation of the stock, and I see where there are disconnects. I do look at macro factors to a degree. More with macro factors, I just use that to somewhat handicap my valuation, and also for portfolio allocation in terms of weights. But primarily, I’m a bottom-up focused investor where I focus on the valuation of the stock as well as the underlying fundamentals.
Monetary Metals:
All right, here’s a fun one for you. Is dividend investing just a behavioral hack for staying invested through volatility? Some people say they see the prices go up, they see the prices go down, they want to sell, they want to buy. But if they’re a dividend investor as their long term thesis, they don’t focus on that. They just focus on, Okay, strong, stable dividends. Is this a behavioral hack more than an investing thesis?
Samuel Smith:
I think for many it is. I think especially if you’re a retiree, like I was saying at the beginning, that can be a good thing just to keep you from letting your emotions get in the way and panic selling or panic or chasing fear of missing out buying. But for me, my personal approach, again, with my opportunistic capital recycling, the way I view it is I let volatility serve me rather than me serving volatility, rather than letting my emotions get swung wildly, selling when stocks fall or buying when they rise.
I actually let volatility work for me in saying, I’m happy with what I have. As Buffett says, if the market closed for 10 years, I’d be happy holding what I have and just collecting the dividend. But since markets are open, since they are volatile, if Mr. Market offers me a free gift or a heavily discounted gift, I will take him up on that. If he offers, if he gets too happy about a stock and offers me more than I think it’s worth, I will gladly let him buy it from me. I let the public market liquidity and volatility serve me rather than the other way.
Monetary Metals:
What do you think is the biggest mistake that yield or dividend investors make? They see, Oh, my gosh, maybe it’s a high yield, and they mistakenly go to something too risky. What’s the biggest mistake you see dividend investors making?
Samuel Smith:
I think it’s the balance sheet. They don’t put it, and that’s myself included. I I have not put enough emphasis in the past on making sure the balance sheet is in quality shape because that’s, I think, the vast majority of the time where investors get burned more than anywhere else, especially in the dividend space.
Monetary Metals:
What should investors think about a company that hasn’t in the past offered a dividend and now does? Is that a good sign? Oh, this is great. They’re paying a dividend now. They’ve got some extra cash lying around. Or do you usually see this as a marketing ploy or something risky because, hey, they’ve never actually done this before?
Samuel Smith:
I think, generally speaking, it can be a good thing because it shows that they’ve matured to where they are confident in their profitability and their earnings stream and their ability to return capital to shareholders. It also means that management is going to be more disciplined. Since they’re sending out cash regularly to shareholders, they making that commitment, they’re making that commitment.
They’re less likely to engage in vanity empire building, where, Oh, we have extra cash. Let’s just go spend it on some random venture, even if it doesn’t turn out. The one time I would be concerned about that is if my investment thesis was, I’m investing in this company because it has a huge growth It’s very innovative.
It’s very disruptive. And if they get to a point where they’re paying out a lot of their cash as dividends, that tells me that they are running out the track of investment opportunities to continue their growth. And so that, to me, would be a yellow flag, if not a red flag, that, Okay, the This company may soon slow its growth, and which may cause the market to reprice its valuation and reappraise its growth prospects.
That would be the one time I view it as a potential negative. Otherwise, I view it as a positive.
Monetary Metals:
Okay, next one for you. We’ve heard about the death of industrial real estate, malls. Do you think that REITs, especially maybe mall REITs, are they basically dead as an asset class? This idea of, Hey, commercial real estate is gone. Do you believe in that? Do you see that in the data? What do you think about this whole REIT space?
Samuel Smith:
I don’t think REITs are dead. I just think that they face a lot of headwinds from higher for longer long term interest rates. But if you buy, for example, especially public real estate, if you buy, again, good real estate, make sure, again, same with Malls. You need to make sure you’re investing in a really high quality Class A Malls, but really any area of the real estate space, you want to buy good real estate. It’s not heavily oversupplied.
You want to buy it and make sure it has a good balance sheet, that it’s not overly dependent on refinancing debt at high interest rates, and that it has otherwise not too much leverage, and that it trades at a material discount to net asset value with decent growth prospects and good management, I think they can be great investments. It’s just what do you pay for? I would just say if you’re investing in REITs today, don’t base it on the same old thesis that, Oh, the Fed’s cutting rates, so the long term interest rates are going to come down, too, and therefore, REITs are going to soar. Don’t assume that’s going to happen. I think that’s a lazy way of thinking about REITs.
You need to be very selective, very cautious in how you approach the space. Otherwise, you’re going to be disappointed. But no, I don’t think REITs as a whole are dead. I own some. In fact, I just bought some shares of a REIT yesterday, and I just interviewed a REIT CFO today. So I’m still very busy in the REIT space.
Monetary Metals:
All right. Let’s say somehow we get Jerome Powell on your podcast. He comes on and he’s Yeah, Sam, you can ask me any questions you want. He’s got his truth serum. What are some questions you’d want to ask Jerome Powell in this current environment?
Samuel Smith:
I guess the first thing I’d ask him is, what is his relationship with God like? Because we are expecting him to be God of the economy when in reality, he’s just a finite human being like us, has very limited knowledge. That would be my first question to him, because if he’s not getting wisdom from above, that’s concerning to me. That’s a little bit tongue in cheek.
But my second question to him would probably just be, how heavily are you leaning on what data metrics? Because a lot of data that the Fed supposedly looks at can be very delayed. It can be very slow to adapt to the a different situation. In addition to having just human limitations, the fact that they are leaning so heavily on certain data metrics that may be borders behind can be important, especially now where we’re at such a point where there are some indicators saying the economy is going down, but there are some things that are saying, Oh, the economy is going to go up, and the same goes with inflation. Some indicators that’s going to rise, some that’s going to go down. It’s really important to make sure he’s getting the best data possible to make those decisions.
Then finally, I would probably just ask more frank question of how much, really, again, this is assuming I could ask him anything and you’d give me an honest answer, how much are politics playing into not only his but the broader board’s decision making?
Because on the one hand, there’s no love lost between Powell and Trump. And so in that sense, he may be motivated to try to spite him. But then, on the other hand, there is very real political pressure being applied to them from the administration. And they know that Trump is going to do everything he can to replace some of them if he feels like he needs to, et cetera. So I’d be curious to hear about that as well.
Monetary Metals:
Okay, next one for you. Talking about data that hasn’t come in yet and maybe impacting inflation. What are you thinking about tariffs? We’ve heard all these announcements. There’s 100% tariff on China. Never mind. It’s here, it’s there. So how should investors What do you think about tariffs? Is this just something that we got to wait and see until something really sticks, or are we already seeing the impact of tariffs in prices?
Samuel Smith:
Yeah. I mean, tariffs is really, like you said, it’s so chaotic. It’s hard to know what exactly is going to happen. Philosophically, I think if we’re not going to cut spending, which I think is the best approach to getting our way out of our mess, dramatically cutting spending.
But if we’re not going to do that, which appears to be not on anyone’s priority list, then I think probably tariffs our next best solution just because, yes, there are tax, but so would corporate income tax raising, which is what the Democrats have pushed, for example, or any other tax or the inflation tax, for example. And at least, Tariffs, studies have shown that at least some of them are born by foreign countries, whether they be the government or a company’s exporting to us.
It’s usually some a split, that some of it’s born by the consumer/the retailer on the US side, and some of it’s born by foreign people. And so At least there, it’s not entirely being borne by us. That’s good. Also, if it raises prices, sure, it’s bad for inflation, I guess, in the short term, but it’s just a one-time step. It’s not an ongoing inflationary spiral.
To the degree it raises prices, it could encourage consumers to save more, which I think would be healthy for our economy. We’re overly indebted. We spend too much. So again, I’m not a fan of tariffs. I think they’re a net negative. But given that we’re not going to cut spending, which again would be my first priority, if I were the one calling the shots, so to speak, it’s probably the least bad of the bad answers. But as far as investors trying to make sense of it all and how do they invest, again, it’s hard to know. You can place your bets and potentially win big or lose big.
Personally, again, what I’m trying to do is I’m trying to focus on those opportunities in the market where, again, within the realm of diversification, I do have some exposure to trade sensitive companies, et cetera. But generally waiting my portfolio towards more domestic-focused businesses where they’re not quite as heavily impacted by trade or tariffs. And if they are, I try to put them in a situation where they’re generally going to see upside from it. So for example, investing in some Latin American asset managers that are benefiting from some of the decoupling from China.
It’s a more attractive place to invest or just the general concerns about a geopolitical unrest in the Far East. So maybe people looking for international exposure go to Latin America instead China or China-adjacent countries or AI infrastructure companies that are going to benefit from the massive CapEx boom for AI and aren’t really sensitive to import, export, policies.
Monetary Metals:
Okay, next one for you. We get Warren Buffet, the Oracle of Omaha. He says, You know what, Ben, Sam, I want to join you guys for an interview. I know what I’m asking him. Does the fact that a yield on gold paid in gold means gold is productive, changing your view on the shiny Pet Rock thesis. But Sam, what would you ask the Oracle of Omaha if you could get him with his true serum onto your podcast?
Samuel Smith:
Probably his notion of having so much of Berkshire’s wealth stored in cash, because that has devalued a lot in recent years as asset prices have soared. Why has he never considered having at least some of it in gold, especially as to your question, would he put some of it into monetary metals, least the thesis, for example? Why hasn’t he diversified that cash stock file a bit?
Why is he bet so heavily on cash in an environment where it should be obvious to him included that inflation is a major problem? That’d probably be my biggest question.
Then second, I would just push him a little harder on his never bet America thesis. Just again, the idea that, yes, over short periods of time, relatively speaking, sure, I agree. But given what’s going on in the world right now and some of the transformations we’re seeing, does he still truly in his heart feel as unshakingly confident in the future of the current American-led economic and geopolitical order as maybe he was 30 years ago? Those are probably the two big questions I would ask him.
Monetary Metals:
Okay, next one for you. What’s an undervalued or under-taught about area of investing? Maybe it’s cars that don’t need a driver, maybe it’s AI, maybe it’s a Latin American country. What’s something that isn’t getting talked about enough in the investing space?
Samuel Smith:
I’m going to sound like a I’m working on a working record here, but I would just say the implications of what’s going on fiscally and geopolitically. I think Wall Street is sleeping, is asleep at the wheel on the very real threat that China poses to American prosperity, both economically, but especially geopolitically. If you listen to our leading military leaders, especially, for example, Admiral Sam Paparo, who is the current Commander of the Pacom, he is very concerned, and his predecessor was also very concerned about the risk of China invading Taiwan.
Even Secretary Hegseth, in his recent speech over in the Pacific to a bunch of Pacific nations, said the threat of China invading Taiwan could be imminent. It could happen at any time. If you look at the balance of power there, it is increasingly tilted towards China. If China were to invade Taiwan, I’m not I’m saying it’s greater than 50% chance of happening in the next few years, but even our intelligence suggests that Xi Jinping has ordered the People’s Liberation Army to be ready to invade by 2027, and they’ve beaten every single deadline he’s given them in the past. We could be right on the threshold of this happening.
Given what they just have been doing with the rare earths type stuff, that’s just a foreshadowing of what could be going down here. I do appreciate, at least in the Trump administration, seems to have more urgency dealing with this than previous administrations have.
But I don’t think Wall Street clearly is not pricing that in at all. I mean, everything’s at very lofty valuations. Companies like NVIDIA, Tesla, they are very heavily dependent on Taiwan and even to, especially Tesla, to China, such that if a war were to break out over Taiwan and the supply of semiconductors were cut off, I mean, those companies would just tank.
And much of our economy would, not to mention the threat to the global, what remains of the global dollar reserve currency status, especially if we were to lose the war or even just suffer so many losses to our Navy that we can no longer adequately secure global shipping chains or even just the world’s perception of US superpower status and ability to to back up the dollar, so to speak, with our guns, because that’s really the only thing back in the dollar today is US military power.
So I think that is a huge risk to American prosperity that is not being discussed enough. It’s largely being ignored by Wall Street. Frankly, I’m shocked Again, just another reason to be bullish on gold.
Monetary Metals:
All right, here’s another one for you. Outside of investing, what’s a tip that you can give people? Maybe about family life, having a great marriage, great kids. What’s something that you can give as a tip to people that’s outside of the investing universe?
Samuel Smith:
Well, I would say that I would tie it to investing and just say that investing has taught me a lot of important things that extend well beyond the investing universe. The Book of Ecclesiastes is from the Bible, and I’m Christian, and so I look to the Bible for wisdom in life and investing.
And there’s a passage in there that speaks to investing. It talks about the importance of casting your your bread on many waters. It talks about allocating a portion to several different things because you don’t know what misfortune may befall the Earth, so the importance of diversification. And that doesn’t just apply to investing.
That applies to many different things. It talks about the importance of consistency, not trying to watch the sky for the perfect time to plant, because if you do, you may never even plant. And many things like that. And that just applies to investing. The consistency aspect, the diversification aspect, but probably more than anything, the humiliation aspect, or I should say the humility aspect. Certainly, humiliation comes a lot with investing. But having humility, realizing, as I was saying, I can be convinced of something, but I could still very possibly be wrong about it, because we don’t know.
God is sovereign. I’m not. And so ultimately, what he wills will happen, not not what I think is going to happen. Just walking with humility, whether it be in my investments and diversifying accordingly, or in my life, whether I’m relating to my wife, my children, to other people in the neighborhood, having that humility that, yes, I have been balancing it with courage and conviction, saying, I have strong opinions. I’ve researched it. I believe it strongly. B
ut still tempering that with that humility, that balanced perspective, that it doesn’t free me from the responsibility to think diligently about and having conviction, especially, I believe I’m the head of my home, and I’m supposed to lead with conviction. But having humility, realizing, you know what? Maybe I’m wrong about this. Maybe my kids see something that I don’t.
I should give attention to what they have to say, or certainly my wife, obviously, or a friend of mine who points out a blind spot in my life. And certainly it’s God conviction it out through his word as well. So I think that balanced perspective is the biggest lesson I’ve learned from investing and that I think can carry over to to other aspects as well.
Monetary Metals:
All right, Sam, last rapid fire question for you. What’s a question I should be asking all future guests of the Gold Exchange podcast?
Samuel Smith:
Well, I would simply ask them, what is your view on gold? Obviously, that seems silly, but beyond just what is your view on in terms of, is it going to go up or down next year or whatever? What really, in your view, gives gold intrinsic value? Why is gold more than just a speculative instrument for the pet rock theory type thing or greater fool theory? Why do you believe in gold truly as an intrinsically valuable asset? Because I think that really your answer to that question speaks volumes to not only how you approach investing in gold, but really your view of the world.
Monetary Metals:
Sam, where can people find more you and more of your work? This has been a fascinating interview.
Samuel Smith:
Well, you can find me on Seeking Alpha. Just type in my name, Samuel Smith, or you can even just go into Google, Samuel Smith Seeking Alpha. It’ll pop You can follow me on there. Certainly, if you want to have access to me through a phone call or regular live webinars or through a chat, you can send me messages through or just my best and latest research, including my full portfolio and trades. You can find all that at High Yield Investor if you’re a subscription there.
And then also my YouTube channel, Samuel Smith, Dividend Investing. I put out a couple, 2-3 videos a week where I share some of my latest dividend and general macro and overall investing philosophy insights there as well. It’s an increasing order of detail with the YouTube. Then Seeking Alpha public articles on high yield investors is probably going to get the best. We will definitely get the best information from you.
Monetary Metals:
Sam, it’s been a pleasure speaking with you, and hopefully we’ll have you back on again soon.
Samuel Smith:
Awesome. Thanks so much, Ben.
