If I Had to Start My High Yield Dividend Portfolio All Over, I'd Do This

Added: 2026-05-10

[00:00:00]Throughout my high yield investing journey over the past decade, I've made some mistakes along the way.

[00:00:06]Fortunately, I've never held an investment that went to zero, but I have held certain things that I regret holding. I've also done certain things that expose my portfolio to a lot more risk than what I'd now consider acceptable.

[00:00:20]So, today I want to discuss some things that I would do differently if I were just starting out as an income investor today. And I'm not going to discuss things that are very generic. We all would have chosen to start investing earlier if we could go back in time. And most of us would have chosen to invest more money when we were younger. These will be related to my investing strategy and how it's evolved over the years. So hopefully this video will prevent people out there from experiencing some of the same pains that I did early on. So with that being said, let's get started.

[00:00:56]The first way I would invest differently if I were just starting over is I would avoid practically all mortgage reads.

[00:01:03]After investing for as long as I have and monitoring this sector for a pretty long time, I can attest that almost all of these companies are mediocre at best and really poor on average. I used to hold quite a bit of these companies in my portfolio, but as time went on, I began selling them off due to their poor performance. Now, in my defense, emeres were a lot more popular about a decade ago. There were a lot fewer high yielding options that were available for income investors.

[00:01:34]Now that there's been such a high demand for income investments over the past few years, companies have been introducing all kinds of new high yielding options to choose from. But when I started, almost no covered call or options-based funds existed, and there weren't a lot of other options out there. Today, we have high yielding international funds, higher yielding preferred funds, and we're seeing new products getting introduced like barrier ETFs, target income funds, and even autocallable ETFs.

[00:02:06]There are many more options that exist today that are good or they have good potential. almost a decade ago and up until a few years ago, I allocated a lot more into mortgage rates. One of my first ever high yielding investments and one of the investments that got me into this style of investing was Annalie Capital. They're one of the oldest emere and they've long been the biggest in the emere sector. These are two things that they love to advertise and you would think that this would equate to a better performing stock. But NLY share price has collapsed by 2/3 following their recovery from the global financial crisis and their dividend is almost half of what it used to be. Over the years, I've held several of these companies and I've sold off nearly all of them. Aries Commercial Real Estate Corp. is another MRE that I used to hold. They have a great external manager who manages one of the best BDCs in the sector. And for many years, they were doing great with no dividend cuts and paying the occasional special dividend. But right when interest rates started going up, this company started to fall apart.

[00:03:18]Their earnings took a massive hit and the dividend was slashed by more than half. Another mortgage rate that I used to hold that had great potential years ago was Sichum Capital. They were reporting good numbers. They had a good deal on an acquisition and they actually recovered much much better than most mres following the pandemic. But just like everyone else, they too cratered and saw a couple of dividend cuts. So my advice would be to avoid nearly all of these companies. I keep saying nearly.

[00:03:51]So you're probably wondering which mres actually are decent. The only company that has a perfect dividend track record and has been the most stable is Starwood Property Trust, but they too are feeling the pressure. They haven't been generating enough income to cover their dividend, but the board does continue to say on their earnings call that they are confident that they'll be able to sustain their dividend. So, we'll have to wait and see if that plays out.

[00:04:19]Rhythm Capital has been a great company following their radical transformation a few years ago, but it's appearing likely that they will transition away from being an MRE at some point because the board will not increase their dividend.

[00:04:34]So, my advice to most high yielding investors would be to avoid nearly all of these companies unless you have a very high tolerance for risk. Conditions are currently improving for MREs right now now that we have lower interest rates. But if you're a long-term buy and hold investor, I still wouldn't consider the vast majority of these companies.

[00:04:56]The second thing that I would have done differently is strategize my diversification.

[00:05:01]You hear everyone say that diversification is important, but I would argue that it can be even more important for high yield investors. If you're depending on your dividends to pay for your living expenses, the stakes are higher than most investors who are seeking capital appreciation.

[00:05:19]Therefore, when I invest, I have my own guidelines that I follow to ensure that if I do experience a dividend cut that it's not going to negatively impact my income as much. I'll go over what rules I personally follow when it comes to diversifying.

[00:05:35]When speaking of individual companies, I limit my exposure to no more than 5% each with a couple of exceptions. I don't want any single company to make up more than 5% of my portfolio unless they have a decadesl long track record. For example, Realy Income and Main Street Capital make up more than 5% of my portfolio each because they've proven themselves to be safer investments.

[00:06:02]If it's a higher risk speculative company, I don't want to exceed more than one or 2% when it comes to my portfolio allocation.

[00:06:10]Now, if we're talking about ETFs that hold multiple positions, I'm comfortable with going as high as 10 or 15% each.

[00:06:19]Now, sector allocations are just as important as individual stock allocations.

[00:06:25]About 5 years ago, BDC's made up over 40% of my portfolio. And it's during times like right now that I'm glad that this is no longer the case. As I'm recording this, we're currently in the middle of earnings week for this sector.

[00:06:41]And already about half a dozen of these companies have announced a dividend cut.

[00:06:46]At the same time, REITs and many covered call funds have been doing very well. So my rule is I don't like to allocate more than 30% of my portfolio into one sector. So, I don't want to exceed 30% in BDC's, REITs, energy, or covered call holdings. You might be thinking that coming up with all your allocations might be difficult if your brokerage doesn't do it for you automatically.

[00:07:13]This is where I'd recommend linking your brokerage account with a dividend tracker. Some are free, but a lot of them cost money. I use Track Your Dividends for my portfolio. I do like to recommend them because they are free, but it's really not that great of a platform, but it does give you a good portfolio breakdown and a decent estimate of your dividend income for free. A third thing that I would do differently is not always set my dividends to reinvest, but rather use my dividends more strategically.

[00:07:45]For the first few years of my investing journey, I always just reinvested the dividends on all my holdings without taking stock valuations into consideration.

[00:07:56]The truth is, if you hold a dividend stock that's significantly overvalued, or if you have a larger position in a stock that you think you shouldn't have as much of, it's often better to not just reinvest the dividends. A better strategy would be to take the dividends and instead put them into the undervalued positions in your portfolio.

[00:08:18]To give an example, in late 2024, business development companies were getting really expensive. It was at that time that I set some of my BDC dividend elections to not reinvest and I instead put the dividend proceeds into REITs, which were undervalued at that time. I'm not always perfect at this. I've always set my dividends to reinvest for Main Street Capital as an example. Even though this stock has been overvalued almost every day for the past 10 years, and sometimes you just like a stock or an ETF so much that you don't want to interrupt that dividend growth that comes from reinvesting the dividends.

[00:08:59]There's nothing wrong with wanting your dividends to be on autopilot and just reinvest every time, but I am saying that when a holding is overvalued, handpicking where the dividends go can help you a lot more. Let me know your thoughts and if you've experienced any of these situations or maybe you disagree with something, feel free to let me know in the comments. If you like this video, please consider giving it a thumbs up and subscribe if you want to see more high yielding investing content. And with that being said, thanks for watching today's video.