If you are interested in participating in the stock market, you are most likely interested in the receiving the highest return possible on your invested capital.

You may also be interested in why you weren't taught this stuff in school.

But that is for another newsletter, where I will go deep on the future of education….

You buy ownership in great cash-flowing companies that improve the world with the hope of making money.

If the stock goes up in price, you can sell it and collect a profit. You can also buy a company that is willing to pay you a regular dividend.

These are the two ways you can make money in the stock market.

You can also buy and sell options contracts that are tied to the underlying stocks with the hope of generating a return.

The three main styles of investing are growth investing, value investing and dividend investing. You can blend these styles of investing to suit your personal taste, goals, risk appetite and macro-economic outlook.

You can then implement further strategies.

You can invest by market capitalisation, which involves selecting companies based on the size of their 'market cap' (the total value of all of their shares that are in circulation).

You can be an active day trader or swing trader hoping to beat the market short term, by buying low and selling high. Or you can buy and hold passively for the long term via index funds, index ETF's or mutual funds.

You can be sector specific or diversify across different industries.

Sounds great, we buy stocks and make lots of money right?

If the economy is healthy this makes sense.

If the economy is not healthy there is more risk.

We are entering a period of immense change when it comes to how the monetary system is structured.

Gold is shooting higher fast, which indicates a lack of faith in currencies.

The S&P 500 and the Nasdaq indexes have been very volatile, experiencing large drawdowns but they have recovered to remain positive over the last year.

Reducing risk may be an optimal approach in the near future. Hence in this issue I will explore the investment style of dividend stock investing, which can be a safer way to approach investing in stocks.

Investing in hyped-up growth stocks and meme-coins is great if you have managed to make money, but this approach may not work out so well in the near future if there is a global recession and a monetary system restructure.

In times of uncertainty investors will flee to safety, and the bond market may not provide that safety anymore as it has traditionally done.

Government bonds pay you a fixed return in a particular currency. If that currency is losing it's purchasing power at 8% per year (due to price increases) and you are getting paid 4% on your bond payment, that means you have a -4% real return.

Your currency is losing 4% of its value in purchasing power every year, which is not good.

Companies that build the foundation of societies along with the ultimate safe haven of gold, may become the desired place of safety as capital flees the highly valued technology sector and into more defensive assets.

Sectors such as mining, energy, and consumer staples could benefit.

Especially if the stocks are cheap.

High-quality companies in these foundational industries, that will pay you a regular dividend, could represent a great investment and passive income opportunity moving into the future.

Unfortunately, a lot of private wealth may be lost in periods like this where the monetary system is reset and re-aligned.

Portfolio capital will be re-allocated to go where it is treated best, and allocation percentages in certain unloved industries may revert to a long term mean or increase substantially.

If there is a market crash, the market may recover to previous highs but how long will it take?

For example, the Japanese stock market crashed in the early nineties. It took Japan's Nikkei index around 30 years to recover to its previous 1989 all time high.

Will the USD still be the worlds reserve currency a year from now?

I don't want to be a bag holder and I don't think you do either.

This is the global macro game of investing we are playing….

Introduction to dividend investing

Dividend stocks are shares of companies that pay out a portion of their profits to shareholders as cash payments or with shares of the company.

These payments (called dividends) are typically distributed quarterly, although some companies will pay them monthly or annually.

You collect passive income just from owning the stock.

In contrast, when buying a stock that doesn't pay a dividend you are relying on stock price appreciation or future dividend payments to generate a return on investment.

You can also choose to reinvest your dividends collected by buying more shares in order to compound your returns. This is called dividend reinvesting.

You may also generate a return from potential stock price appreciation.

The attraction to dividend paying stocks is the higher potential return when compared to comparable lower risk options, such as bank deposit interest payments or treasury bond coupon payments.

The trade-off is that there is more risk investing in dividend stocks as the stock price may fall, whereas this can not happen with bank deposits.

The price of a treasury bond may fall, but If you hold a treasury bond to maturity you will you receive your principal investment back in full.

You will only receive the current market price for your dividend paying stock if you decide to sell at any given moment, the price could be higher or lower than what you paid.

This is why dividends stocks would suit a long-term buy and hold strategy, to collect income in order to protect against consumer price increases and to compound your returns if you reinvest the dividend.

Sector discovery

You will need to assess the current state of the economy, interest rate levels and the current macro-economic environment when determining which sector to invest in.

You can ask yourself some questions.

What are the chances of a recession happening in the future?

Where are interest rates likely to go in the future?

For example, banks traditionally do better in high interest rate environments because they will make more money on loans. Growth companies with high debt levels may not do so well.

In a recession, banks may not do so well due to defaults. Investors may prefer to own companies with strong cash-flow and low debt in defensive sectors such as consumer staples and essential services.

A total system and currency collapse may lead you towards only hard assets— precious metals, precious metals miners, commodities, real estate and energy.

Nothing is certain though.

This is where understanding the current state of the economy and having a thesis on where it may head in the future will be extremely valuable.

As a matter of importance relating to self-actualisation and self-education; I recommend developing your own foundational economic understanding of the world before allocating any of your hard earned capital.

Learning how capital flows within an economy and how it is affected by market intervention and price controls, will help you determine the sector you invest in and let you better assess the potential of your dividend paying stock.

How to calculate opportunities

Lets say I am Australian and I want to invest $10,000 AUD. That is equivalent to $6405 USD currently.

The company Frontline (Ticker: FRO) is an oil tanker company which I am looking at buying. It is currently trading at $17.11 USD per share on the New York Stock Exchange.

I go onto the Trading View website and see that the dividend yield TTM (trailing twelve months) for this stock is 10.37%, which is a pretty good return.

TTM means that the company paid out 10.37% of dividends in the last twelve months relative to its current share price of $17.11.

I can do a quick calculation to figure out the dollar amount that I will be paid annually based on the current stock price.

• Investment capital: $6,405

• Dividend yield (TTM): 10.37%

Annual Dividend Income = 6,405 × 0.1037 (percentage expressed in decimal terms) = $664.20 per year in annual dividend income, $166 as a quarterly dividend payment.

If the stock price remains the same and the dividend payouts remain the same, this is technically what I will receive over the next year.

Dividend payouts can change so I am very interested to know what the last dividend payout per share was.

I go on to trading view and see that the last quarterly dividend payment was $0.20 per share, down from $0.37 per share from exactly one year prior.

To do some calculations, I need to figure out how many shares I can buy at the current stock price.

To get this figure I do the following calculation: $6405 (invested capital) / $17.11 (price per share) = 374 shares.

I can buy 374 shares with $6405 at the current share price of $17.11.

So if this quarterly payment of $0.20 per share was to repeat itself on the next quarterly payment date I would receive $74.80.

374 (total shares) x $0.20 (quarterly dividend per share) = $74.80 quarterly dividend payment, $299.20 per annum.

This is much less than the $166 quarterly dividend payment, $664.20 per annum amount that I calculated earlier from the dividend yield TTM (10.37%).

It would mean the annualised dividend yield would be 4.67% as compared to 10.37% if this payment were to repeat over the next year.

Dividend yield % = Annual dividend per share / price per share x 100

0.80 (0.20 × 4 quarters) / 17.11 (price per share) × 100 = 4.67%

I conducted some research and it indicated that oil tanker spot prices are cyclical due to demand factors such as higher seasonal demand for oil due to heating in winter.

These factors can explain why their dividend payouts change over the course of a year.

Higher demand creates higher tanker spot prices, which creates more income for the company.

I now have to consider if the dividend payout per share is likely to stay the same, increase or decrease over the next 12 months after considering all these factors and more, such as the dividend payout ratio.

Assessing the sustainability of the dividend

In my situation, I have observed that the quarterly dividend payout per share has decreased and I want to figure out why.

It decreased from $0.62 to $0.20 over the last six months.

The first thing I should look at is the dividend payout ratio, which was 87.6% for the year of 2024. This is a relatively high ratio.

The dividend payout ratio is the ratio of the dividend payout as compared to the total earnings of the company.

Dividend payout ratio = (Dividends per Share / Earnings per Share).

Generally speaking in between 60-80% is safe and greater than 100% is unsustainable, as the company is paying out more than it earns.

We need to discover if this ratio is sustainable and also assess the general financial health of the company.

Artificial Intelligence is incredibly useful for this task.

I used the Deepseek LLM for this and it did a frighteningly good job.

These are some questions you can ask your favourite AI:

Does it have a good free cash flow to dividend payout ratio?

Does it have low debt to equity ratio? (Too much debt means your dividends could get cut).

Does it have good earnings growth?

What is the forward earnings per share estimate?

Can you give me a detailed analysis of the debt levels of the company?

In my case with Frontline, I have observed that the dividend payout ratio was 87.6% for the year of 2024.

I consider this to be fairly high, in 2023 it was even higher at 97.33%

The free cash flow to dividend payout ratio is 89%, meaning Frontline pays most of its earnings in dividends.

Having noted these figures I then prompted Deepseek with this question:

'I noticed that the dividend payout ratio for the company 'Frontline', ticker: FRO, is very high. Is the companies goal to reward their investors with a high dividend? Can they sustain this dividend payout ratio when considering their projected earnings growth? Please give me a detailed analysis'.

The answer it provided was incredibly precise and informative.

The future definitely belongs to AI and the people who can utilise it. If you like, you can check out the one-person business model to learn more about what I believe to be the future of work.

I undertook some further analysis and asked Deepseek about earnings, debt levels, interest payment on debt levels and asset levels.

I can see that the earnings growth and earnings per share is good.

Debt to asset ratios are low— meaning that they can pay off their debt easily if they sell their assets.

Their earnings covers their interest payments on debt easily.

If demand for oil and tankers stays stable and tanker spot rates remain at current rates, I make the assessment that this is a good dividend paying stock to own. It comes with a high dividend yield on capital invested and potential upside in the stock price.

It seems the company is intent on rewarding its shareholders with a nice dividend payout which is common in the shipping industry.

It does not seem to be a company with high debt levels, that tries to lure in investors with the bait of a high dividend yield.

This situation is called a 'dividend trap' which you need to be careful to avoid.

Dividend growth history | Aristocrats and kings

There are some companies that have a long history of consistent dividend payout increases. They are referred to in financial parlance as Dividend Aristocrats and Dividend Kings.

Dividend Aristocrats are S&P 500 stocks with 25+ years of dividend increases.

Dividend Kings are stocks with 50+ years of consecutive dividend increases.

These are companies with a consistent growth history and are usually healthy and profitable companies that represent a relatively safe investment.

Think of companies like Coca-cola, Exxon Mobil and Altria.

In summation

Dividend paying stocks present an attractive investment opportunity in the future world we are moving into.

The highest global debt levels in history and potential monetary system restructure means the environment could move from a risk-on to risk-off environment. Debt levels, money printing and consumer price increases may lead investors to avoid bonds and move into 'safer' investments.

Great care must be taken when choosing which sector to buy.

The global macro environment is changing and your macro thesis must align with your investment strategy.

I will be personally looking to buy some great companies that pay dividends very soon, adding to my portfolio of precious metals and energy stocks. I will continue trading options but will reduce my allocation percentage as they are mostly in volatile technology stocks. I will sacrifice the healthy options premium in order to reduce risk.

Remember to consider that your dividend payout is not guaranteed and that companies may change or remove the dividend payout at any time, so it is important to analyse the company carefully.

The stock price may rise or fall during your period of ownership, this favours a long term buy and hold strategy instead of a short term buy and sell strategy.

Consider reinvesting dividends to compound returns and diversifying into different companies.

Avoid yield traps where bad companies will pay extremely high yields to lure in investors.

Take note of the ex-dividend date, which is the final date that you must buy the stock before, in order to be eligible for the next dividend payment.

The closer you buy to this date the faster you will receive your first dividend payout, which means more return on capital invested.

You will receive your dividend payment directly into your cash account on your brokerage platform.

I personally use Interactive Brokers and find them to be a great and reliable brokerage platform. They also have access to the highest quantity of markets around the world, which is very important if you desire to invest outside of your home country.

I am an amateur investor so please don't take this as professional advice, however, I hope that detailing my thought process and decision making process will be of value to people who hold a similar level of market knowledge.

Best of luck in your dividend investing journey.

Thanks for reading.

-Shernon

*Not to be construed as financial advice. This newsletter is for informational and entertainment purposes only. Please perform your own research when making financial decisions.

Cover photograph by Shernon Hague | Nara, Japan 2016 | 35mm film