The Dividend Cafe - Thursday - October 1, 2026

Episode Date: October 1, 2026

Brian Szytel hosts The Dividend Cafe from New York City on the first day of Q4, noting a benign market day (Dow, S&P, and Nasdaq flat) and a slightly steepening yield curve. He argues that higher long-term rates repricing toward nominal growth is natural, not inherently sinister, and says the first “cracks” to watch would be widening high-yield credit spreads, which remain very tight, suggesting no recession signal. He reviews economic data including initial jobless claims at 197, manufacturing PMI still expanding at 55.9, and construction spending up 0.9%, ahead of an expected 90,000 nonfarm payrolls report. Responding to an article on dividend growth, he endorses the quality of dividend growers but rejects the claim that a 3–4% yield with ~7% dividend growth is unavailable, warning that funding spending by selling shares or using option overlays on dividend portfolios can cause permanent impairment; he recommends building a dividend portfolio to meet expenses and cites David Bahnsen’s book, “Profit from the Profit." 00:00 Welcome and Market Snapshot 00:48 Rates Rising and Growth Outlook 02:06 Watching Credit Spreads 02:31 GDP Earnings and Productivity 03:56 Jobs Data and Economic Calendar 04:46 Dividend Growth Strategy Debate 06:10 Why Selling Shares Hurts 06:40 Options Overlays and Better Approach 07:20 Book Recommendation and Sign Off 07:41 Disclosures and Disclaimer Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Welcome to Dividend Cafe. This is Brian Sightel, your host this Thursday evening, the first day of the fourth quarter and day before my birthday. I'm in New York City here at the Bonson Group. I'll call it HQ2, our second headquarters here in Manhattan. Recording really a benign day overall in markets. The Dow is flat. it's up 20 points. S&P also basically flat up 20 basis points and the NASDAQ was completely flat.

Interest rates came down a little on the short end and up a little on the long modestly and so you had a steepening yield curve. And there was a few things out in the economic calendar that drove some of this. But what I wanted to talk about a little bit is just that while I understand interest rates being higher is a bit of a tough pill to swallow, especially if you're in the real estate development business or own a lot of fixed income. It's been a tough year. Any duration sensitive assets basically are in a tough spot with rising rates. That said, just understand that interest rates on the long end repricing closer to nominal growth rates is a natural phenomenon. It's not something sinister. There are obviously fiscal issues with this country and the amount of indebtedness and deficit spending. And so some of that

does play into it. But in a very, very deep and very high demand market like the Treasury market globally, for money to be parked in them. I'm less worried on the bond vigilante's coming after our fiscal woes just yet, and more so saying that growth rates in this country have picked up, and interest rates are supposed to go up a bit when growth picks up. And when you have financial repression

with the Fed artificially keeping rates low, while it may help some, particularly people that borrow a lot or real estate sensitive sectors and things, it suppresses other parts of the economy that would grow faster. It's a theme that I've spoken about already, but it's one that I believe in, and we're going to see how this plays out over time. It'll be interesting to see if there are cracks in the dam where I think they'll show up first.

Number one is credit spread. So you should see high yield credit spread start to expand and blow out if there's actual contagion and risk being priced into the system because interest rates are going to cause an actual credit contraction and an actual recession. We're not saying that yet. Those high yield spreads now are basically at all-time tights. So credit markets are working just fine, and we're not seeing anything indicative of a recession. And technically, earnings that have grown the past 12 months, believe it or not, 30%. I was being conservative in that number. It's actually more than that. But let's say that it's around 30%. And they're expected to grow somewhere near 20 over the next year. That puts nominal GDP technically on the quarter at 8.5%. I said 6 because if you look at a year over

year basis, really, that's more realistic. There's a heck of a quarter put in there to drive that nominal GDP number higher. But when you have inflation, that's three or three and a half, the real rate gets revised lower, and we're looking at real GDP growth, somewhere near 2.2%. That's still better than where it was, which is in the low ones or mid ones, but there's still a long way to go for us to get back to that pre-GFC growth rate in this economy, which was always about 3 to 3.2%. It wasn't until after financial repression because of a credit crisis, arguably the right thing to do, that we saw growth rates really collapse to this new paradigm of the twos to below twos. And in that process, you have other countries in the world growing faster,

particularly China, and size of GDP and economy catches up pretty fast in that arena. And so I believe that we should start seeing some of these things turn a little bit in this country. And you may see productivity pick up because of AI, and that may also lead to a slightly higher trajectory on growth. That's not me prognosticating. It's just me saying that this feels a little different than in previous times. And for me, higher rates aren't all a bad thing. A couple of things in the economic calendar were initial jobless claims that were 197. That's a little better than expected, but largely in line. Keep in mind, anything at 200 or below is just a very healthy employment market. And we'll get the non-farm payroll number tomorrow,

and we'll get the new unemployment rate expected to see around 90,000. I was on Fintech TV today talking about some of these things and we'll include a link in the written version. But healthy jobs number, we'll see what we'll get tomorrow. We're expecting 90,000. It wouldn't surprise me if it came out better than that. That was what happened last month. If you remember, August was 162,000. Also on the day, we had a S&P manufacturing PMI. It took a little lower, but still expanding at 55.9. And then you had construction spending better than expected by quite a bit at 0.9 versus 0.1. So funny how those markets work, rising interest rates, rising mortgage costs, and construction spending is going up. Question in there was about an article through a well-known online finance periodical company,

and it talked about dividend growth, and that the strategy itself around identifying dividend-growing companies was a good one because it weeded out the bad stuff and kept you with the best quality and had better performance. But then since income yields were lower, dividend yields were lower, to not worry about trying to capture an actual 3 to 4% yield that'll grow at 7% because it doesn't exist these days and just try to manage your own distributions through selling shares or options and doing things like that. The first thing I just want to say in response to it is on one hand, I like the article for touting a dividend growth strategy being high quality for all the right reasons. It's very true. Companies that pay dividends don't have the ability to make bad acquisitions.

They don't have the ability to buy back a bunch of shares at poor prices. and there's a commitment to that so that you're not disappointing shareholders in the future to raise those dividends. It just creates this sort of linearity between what a total return paradigm otherwise is variable. So that's why I like it a lot. But on the other hand, there is nothing where I disagree with more that you can't build a 3 to 4% yielding portfolio to have the kegher of dividend growth be 7% since that's what we've done for 20 years and that's what we managed today at the Bonson Group. So take that for what it is. It's not me talking my own book.

It's me responding to this article. But the problem I would say with selling shares to fund your living needs and income needs is when you have down markets and you also have to sell shares to live on, then you're selling more shares because the value of them is lower in a down market to support lifestyle. And then it's unrecoverable. You've caused yourself permanent, unrecoverable financial impairment. And that's not something we let happen on our dime.

And what's why we believe in having dividend payments equal the amount of expenditure needed day one and then grow them and double them every 10 years roughly. If you want to write an option overlay on something, it's a terrible thing to do on top of a dividend portfolio because you limit all the upside when things go down, they're not going to go back up because you've sold it away for income and you capture all of the downside. So it's not a good strategy.

That said, where I have seen option overlay strategies work a little better is just on an index overlay strategy. So take it like the S&P 500 to solely generate income knowing there's a difference in downside paradigm. It's not a bond. It just generates income. That's different. But selling options against your dividend portfolio is a silly thing to do. Just go ahead and do the legwork up front and build the best one that will give you the yield you need today and then grow the yield over time. That's my book written about this by none other than my longtime friend and business partner, David Monson. It's called Profit from the Profit and you really should order it. And if you'd rather just have me send you one, just reach out and let me know and I'll send you a copy. All right. Well, gosh, that's my around the horn for the day. Great to be with you. There'll be a dividend cafe. that you won't want to miss in your inbox tomorrow on Friday, and I hope you have a good weekend. Thank you.

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