How You Can Get Dividend Income Like Shark Tank’s ‘Mr. Wonderful’
Dividends can do wonders for your stock portfolio. A regular cash flow from healthy companies helps investors lock in returns and get paid while they wait for capital appreciation. Since 1926, roughly a third of the S&P 500’s total return has come from dividends. During the 1940s and 1970s, dividends were responsible for more than half of the total return. With hundreds of popular companies paying dividends, how do you find the right stocks for you?
Meet Kevin O’Leary, known as Mr. Wonderful on the hit show Shark Tank. He makes no apologies for his investing strategies but is often considered the most disciplined shark in the tank. He craves cash flow to the point it’s unusual to hear an offer from him that doesn’t include royalties. When it comes to stocks, he hungers for dividends. O’Leary explains in a recent article he learned the value of dividends from his mother. After she passed, he became the executor of her estate and saw the tremendous returns of investing in only dividend-paying stocks.
Today, O’Leary never invests in stocks that don’t pay dividends. He’s also the face of a new exchange-traded fund focused on dividends. The O’Shares FTSE US Quality Dividend ETF (OUSA) is a basket of 142 large-cap and mid-cap American companies paying dividends. The ETF seeks to track the performance (before fees and expenses) of the FTSE US Qual/Vol/Yield Factor 5% Capped Index. Using a passive management approach, the fund holds companies that meet certain requirements based on market capitalization, liquidity, high quality, low volatility, and dividend yield.
As the chart below shows, the ten largest holdings are the most recognizable names in the market, with Johnson & Johnson, Exxon Mobil, and Apple topping the list. Overall, the three largest sectors are Consumer Goods (17.5%), Health Care (17.1%), and Technology (13.9%).
Should you test the waters? There are plenty of fish in the sea these days. The O’Shares FTSE US Quality Dividend ETF is one of several dividend ETFs available to investors. For example, the Vanguard High Dividend Yield ETF (VYM) holds seven of the same companies in its top 10 holdings, while the iShares Core High Dividend ETF (HDV) holds eight. Both competitors also offer significantly lower expense ratios, and have already established themselves in the market with billions under management.
However, some investors may benefit from OUSA focusing on low volatility and avoiding companies with high leverage or poor earnings. Financials only have a weighting of 4.5% for OUSA, but carry a weighting of almost 15% in VYM. Meanwhile, HDV only holds a total of 73 companies, nearly half the holdings of OUSA and a potential concern for investors seeking more diversification. Either way, all three funds deserve consideration for dividend-minded investors.
Follow Eric on Twitter @Mr_Eric_WSCS