Marco Bozem
Independent dividend investor focused on hard assets — shipping, mining, energy pipelines. The entire portfolio strategy is built around YOC compounding, not price speculation.
Dividend investing is the strategy of buying stocks that pay regular cash distributions and holding them long enough for reinvestment and dividend growth to compound your initial yield into a significantly higher income stream. The core appeal: you earn money simply by continuing to hold — the longer you hold, the more your original cost basis transforms into a high-yielding cash machine.
Unlike growth investing (where you bet on price appreciation) or speculation (where you time market cycles), dividend investing is fundamentally about collecting and reinvesting cash. It is patient, boring, and — if executed with discipline — remarkably effective at building passive income over 10–20-year time horizons.
Current yield is the annual dividend per share divided by the current share price. It tells you what income you earn on money invested today.
Example: A stock paying $2.40/year in dividends at a current price of $40 has a 6% current yield. If you invest $10,000, you receive $600/year in dividend income.
Yield on Cost is the annual dividend per share divided by your original purchase price — not the current market price. This is the metric that actually tells you how well your dividend investment is working. As dividends grow while your cost basis stays fixed, YOC rises every year.
YOC compounding is the mathematical heart of dividend investing. The longer you hold, the more powerful the effect. See: YOC Calculator to model your own scenario.
The payout ratio is the percentage of earnings (or free cash flow) paid as dividends. A payout ratio below 60% is generally considered sustainable for most industries. Above 80%, the dividend is at risk if earnings decline. Mining and shipping companies often use free cash flow payout ratios rather than earnings-based ratios because depreciation distorts their earnings figures.
| Dimension | Dividend Growth (DGI) | High-Yield Income |
|---|---|---|
| Initial yield | 1–4% | 6–15% |
| Dividend growth rate | 5–15%/year | Variable, often flat |
| YOC after 10 years | 4–12% (if 8%/year growth) | 6–15% (flat, if not cut) |
| Typical sectors | Consumer staples, REITs, healthcare | Shipping, mining, BDCs, MLPs |
| Dividend cut risk | Low (aristocrats: 25+ years) | Higher (cyclical earnings) |
| Best for | Long horizon, building future income | Immediate cash flow need |
Neither approach is universally better. The choice depends on your time horizon and income needs. If you need income now, high-yield makes sense. If you are building a portfolio for 15+ years from now, dividend growth often competes well because lower initial dividends grow into much larger payments over time.
Marco's approach: a hybrid. High-yield cyclical positions (shipping, mining, energy) generate significant cash flow now, which is reinvested into the portfolio. This removes the need to draw down capital and keeps the compounding engine running. The hard asset focus (shipping, mining, pipelines) provides both yield and inflation protection — two properties that are hard to find simultaneously in traditional dividend aristocrat lists.
A Dividend Reinvestment Plan (DRIP) automatically uses your dividend payments to buy additional shares of the same stock, typically at market price or sometimes at a slight discount. DRIP investing is the simplest form of dollar-cost averaging into your best positions.
See: DRIP Investing Explained for a full treatment of reinvestment mechanics including partial DRIPs, tax treatment, and broker tools.
Most dividend investing resources focus on consumer staples (Coca-Cola, P&G) or REITs. But hard asset sectors — shipping stocks, mining companies, and energy pipelines — offer a compelling dividend investing case that is often overlooked:
Before committing to a high-yield dividend stock, check these three signals:
1. Free Cash Flow Cover: Is the company generating more free cash flow than it pays in dividends? FCF Payout Ratio < 80% = green flag. Above 100% = the company is funding dividends from debt or asset sales — a warning sign.
2. Balance Sheet Leverage: Companies with Net Debt/EBITDA above 3.5x are at elevated risk of dividend cuts if earnings decline. Shipping companies often carry significant leverage — this is the primary risk factor for their high yields. See: Debt/EBITDA Ratio
3. Earnings Cycle Position: In cyclical industries (shipping, mining, energy), a 12% yield during peak earnings is not the same as a structural 12% yield. Knowing where you are in the cycle determines whether the yield is sustainable or a trap. See: Commodity Supercycle
Dividends are taxed differently depending on your country, holding structure, and the origin of the stock. Key points for international dividend investors:
Independent dividend investor focused on hard assets — shipping, mining, energy pipelines. The entire portfolio strategy is built around YOC compounding, not price speculation.