Why Kevin O’Leary Loves Dividend Stocks | OUSA ETF

investor kevin o'leary is incredibly successful and estimated to be worth over 400 million dollars he's best known for his role in the hit show shark tank of which i'm a big fan however what you may not know is that kevin loves investing for dividends so much so that he launched his own etf focused around quality dividend-paying companies throughout this video i will explain why mr wonderful loves dividend stocks and analyzed his o shares dividend etf [Music] [Applause] [Music] [Applause] [Music] [Music] my name is zach and you should leave a like and subscribe to the channel if you enjoy the video today i want to show you why kevin o'leary prefers investing in dividend paying stocks and give an overview of the etf he designed specifically to do so rather than have me explain kevin's philosophy it's better to hear it from mr wonderful himself my mother used to take a third of her paycheck and put it into large cap dividend-paying stocks and corporate credit back in the early 60s and when she died this portfolio existed for 50 years and as an executive the first time i got to look at it she'd hidden it from both of her husbands it was amazing if dividend paying stocks and corporate credits over 50 years you can't find anything that beats that and so when i started doing some research i found out one interesting fact that changed my investment philosophy forever over the last 40 years 51 for sorry over the last 40 years 71 of the market's returns came from dividends not capital appreciation so rule one for me is i'll never own a stuff that doesn't pay a dividend ever if you look at the volatility in the market around names that don't pay dividends they're extremely volatile because there's no cushion of yield what's what's the value of a stock that never returns capital to its shareholders i don't know because the only way you can make money is if somebody else is willing to buy that position at a higher price for some emotional reason perhaps or for some you know foresight that maybe the company will return capital one day and i think of you know what when you learn as an investor over multiple decades is the only thing that matters is free cash flow that's it there is no other reason to own a stock and with that philosophy it brings you into a place where you focus on a company's ability to generate incremental cash flow because just owning a dividend paying stock is not good enough because you know let's say we find a stock today that's paying a three percent dividend yield and tomorrow because it's forecast for sales get cut in half the stock drops by 50 percent now it's yielding six percent i don't want to own that stock either so my tests in this index that i've you know created with ftse russell looks at the balance sheet every year we test to make sure that the company is viable in its ability to generate cash this is extremely conservative investing this is for the long haul these tools are not for as you're suggesting for spicy you know the hot stock du jour i've done that i've been there you know let the young legs do that i have zero interest in that i don't care what the hot new stock is you know when when a company comes public i won't own it either it's got to prove to me over multiple years that i can continue to generate cash before it even fits into what i'm doing so i'm really boring and i like it that way we're talking about real money here the stuff that you need to preserve you know when i think about my family trust i can't afford to mess around with that in my world you never touch your principal you adjust your spending habits your gifts to charities your use of capital based on how much you can generate from your portfolio i view my portfolio and my trust and my positions as a chicken on a spit dripping cash everything has to generate yield whether it's a fixed income position or an equity it has to it the only reason it can be in my world is generating capital back to me i take that i disburse it the family lives off that the charities i've committed to so i'm always looking for a company that can help me with my problem of generating more yield everything that i mean i can't even imagine buying a stock that doesn't pay a difference why would you do that what would be the reason you would do that i don't get it so to me that means about 28 of the market to me is just speculation a staff that doesn't pay a dividend is a speculation it's not an investment you look at companies that don't pay distributions don't return capital how risky they are take a gopro for example i'm not just picking one company i'm just giving you a good example of a company that basically has lost 70 percent of its value never returned a dime to shareholders or how about a company that's been around much longer yahoo never paid a dividend it's never made money for anybody except all the ceos that have gone through there and got whacked it's just a rotating door where management extracts capital never returns any to shareholders and i think look at that and say to myself why don't i just avoid that all together if it doesn't pay a dividend i know that 71 percent of the time all the returns come from dividends why should i own stock doesn't pay a dividend and i never will remember back in the late 90s i'll use one example toys.com i was an investor in toys.com i went to zero never made any money and i grew a little four inch charlie munger on my shoulder when that happened and he appears you can't see him but he's on my shoulder every time i'm getting pitched a deal like lyft or uber and charlie says only one thing if it has no cash flow just say no and i have listened to my little charlie ever since the late 90s and i've been right 100 of the time this company is value-less it doesn't have any cash flow it's a speculation let's summarize kevin's major points cash flow is a priority when making an investment decision this makes sense because positive cash flow is the only real way to return capital as shareholders as warren buffett likes to remind people a stock is just a small part of a business therefore the principles that apply when buying a stock are the same if you were to own a whole business you need to produce a profit and get a return on invested capital as a business owner if you can't generate positive cash flow then you can't make money the only other way is to sell the business to someone else for more who themselves would hope to eventually see a return or sell it again as kevin says this is just speculation ultimately if your business has no path to generating cash flow then it has no value to long-term shareholders kevin uses this line of logic to support investing in dividend stocks a dividend is the only vehicle through which a shareholder can see a return without selling some of their position he also mentions the stat that 71 of total market returns are from dividends not capital appreciation on top of this a lot of what kevin looks for in his investments is stability and diversification it's for this reason that he designs his dividend etfs with this in mind i got a lot of comments on my most recent monthly update video asking about potential dividend etfs so today we're going to take a look at kevin's u.s dividend etf ousa hi i'm kevin o'leary from shark tank and chairman of oh shares etfs many people ask me about investing and the ets i have in my portfolio here's how i invest in u.s large cap stocks ousa an etf with over 100 large cap quality dividend stocks it has given me great performance and dividend income i don't want all the 500 biggest companies just the higher quality companies so i own ousa here's the best part i get performance that has kept up with the s p 500 with 30 percent less downside during stress events this is a u.s large cap etf that i helped built and is in my portfolio as kevin alluded to earlier in this video dividends are responsible for the lion's share of market returns why is this it has to do with the principle of compound interest albert einstein once stated compound interest is the most powerful force in the universe this is shown by the following chart since 1957 the price return of the s p 500 is over six thousand five hundred percent the total return which includes the impact of dividends and compounding is over 46 000 this means that approximately 80 percent of the hypothetical total return that investor would have earned is attributable to dividends and compounding to make this even better profitable dividend-paying companies have the ability to maintain and grow their dividend payments over time from 2010 to 2019 the dividends per share paid by the companies in the s p 500 have more than doubled with a growth rate of nearly 11 percent per year all right so let's take a look at what companies are in ousa if you're a fan of my channel then you may recognize some of these names all usa's top holdings as of december 2020 are microsoft johnson and johnson home depot procter gamble mercanco verizon pfizer apple cisco honeywell united health group amgen coca-cola lockheed martin pepsico and 3m in total the etf has 101 holdings and is curated to include high quality large market cap dividend-paying companies healthcare is at 22 information technology at 21 consumer staples at 16.5 percent industrial is at 14.8 percent and so on since the fund's inception in july 2015 it has seen a 52 price return additionally it pays out monthly dividends to shareholders that vary by amount based on the dividend return of the portfolio that month here you can see the most recent distributions per share the annual dividend yield tends to be 2.08 percent which is pretty low but higher than indexes like the s p 500 o usa has an expense ratio of 0.48 percent which means you pay an annual fee of 0.48 percent your assets in that fund this is meant to pay for management fees administrative fees operating costs and all other costs incurred by the fund this is the crux of why i don't like etfs and managed funds you lose a portion of your assets every year to fees even if the fund loses money or did no better than you could have on your own in the long term these fees could be a big cut to total returns also i just like to have greater control over my investments in these funds you have no say about what they choose to invest in for example in december 2019 ousa had 9.3 percent of their portfolio in the energy sector with 5 total in exxon mobil and 3.24 total in chevron in 2020 they sold out completely and have zero percent energy concentration in their portfolio now i know that the sector was hit badly in 2020 and their value decreased dramatically but i think companies like exxon and chevron will be able to bounce back in 2021 and beyond they have strong balance sheets and were able to hold their dividends through the worst year in the history of oil if anything ousa should have reloaded at a lower cost per share they felt so strong about these companies just at the beginning of 2020. etfs are unwilling to take short-term losses for long-term gain and have little risk tolerance the reasoning for this is because they must maintain and grow value for their clients if they take large short-term losses then their clients will pull out and will send their funds spiraling down give me my money back this is not necessarily a shot at ousa and more just etfs in general i think ousa is a fine dividend etf and is ideal for investors who want to start dividend investing but don't want to do their research or pick stocks themselves if you're not interested in etfs there is still value to doing some research into dividend funds you can look to see what their holdings are and it could give you a good reference point and ideas for your own portfolio although kevin expresses his love for dividends and invests a significant portion of his net worth in ousa he does break his rule about not investing in stocks that don't pay a dividend you know here's an example of one that's turning the corner for me that i'm actually investor in tesla why because i can now see the path to profitability i'm up 38 on tesla the only reason i bought it is my son got in a job as a you know basically an apprentice there an intern and i said trevor on your behalf i'm going to buy a bunch of stock because the stock down's 13 today that a bad quarter and within six months the thing is now breaking even or it even looks cash flow positive a quarter or two so as a result the market has regraded that stock and it's up over 30 percent and i rest my case your honor it's turning into a real company that makes money for shareholders some may call them hypocritical but i think gross stocks have a place in your portfolio as well i've been an investor in tesla since 2016 and it's by far my best performing stock additionally kevin has another etf called ogig this focuses on global internet giants like amazon alibaba facebook alphabet microsoft shopify etc this fund is up 112 this year alone dividend investing is by no means a religion you must follow exclusively but it's a good addition to your portfolio and can help you build a passive income stream thank you for watching dividend data i'd greatly appreciate if you could leave a like and subscribe to the channel if you follow me on twitter link in the description you can get real-time updates of my buys and dividends coming in you can support the channel over on patreon and be a part of helping make these videos happen the link is in the description please leave a comment below and thank you for watching you

Channel: Dividend Data

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Keywords: kevin oleary, kevin o leary, dividend growth investing, shark tank kevin, shark tank kevin oleary, dividend stocks, dividend investing strategy, etf dividend investing strategy, Why Kevin O’Leary Loves Dividend Stocks, passive income 2020, dividend stocks 2020, dividend stocks for passive income, dividend stocks for beginners, is dividend investing a good strategy, the power of dividend investing, the power of dividends, dividend etf stocks, how to dividends, dividend data

Id: IJXt0GX6QjM

Length: 14min 5sec (845 seconds)

Published: Fri Dec 18 2020