O’Leary is also a major money manager, as chairman of O’Shares Investments. When it comes to the stock market, he looks for a few key qualities: stocks must have highly profitable business models and must pay dividends to shareholders.
Next, he looks for companies that have strong balance sheets. His investing philosophy is to diversify across market sectors, and concentrate investment on the companies with the best balance sheet in each industry.
Let’s take a close look at top three holdings of the O’Shares FTSE U.S. Quality Dividend ETF (OUSA) . . . Kevin O’Leary’s dividend stocks . . . and find out why income investors should follow Mr. Wonderful’s lead.
Mr. Wonderful’s Top Picks: Apple, Inc. (NASDAQ: AAPL)
No discussion of highly profitable companies with excellent balance sheets would be complete without Apple. It’s no surprise to see Apple take the top spot in the OUSA fund, at 5.16% of assets.
Apple’s growth prospects are still very attractive. It has several upcoming product launches, including the iPhone 8 and the Apple Watch, that will give the company a major boost toward the back half of 2017.
Equally promising is Apple’s booming services business, which includes the App Store, Apple Pay and iTunes. Apple’s services business generated more than $24 billion in revenue in fiscal 2016, up 22% from the previous year. The huge success has continued this year — Apple’s services revenue increased another 18% last quarter, to $7 billion.
Apple ended last quarter with $257 billion of cash and investments on its balance sheet. Its war chest of cash allowed the company to increase its dividend by 11%, and add another $35 billion to its share repurchase program, after reporting fiscal-second quarter earnings.
Mr. Wonderful’s Top Picks: Johnson & Johnson (NYSE: JNJ)
Coming in at No. 2 in Mr. Wonderful’s major dividend stocks ETF is health-care giant Johnson & Johnson, with 4.94% of OUSA’s assets.
J&J is one of the most impressive dividend growth stocks in history. It is part of a select few stocks known as “Dividend Kings.” These are companies with at least 50 consecutive years of annual dividend hikes. J&J is one of only 19 stocks to make the cut. It has increased its dividend for 55 years in a row, including a 5% hike in 2017.
Health-care stocks like J&J are a natural fit for a dividend growth portfolio. They typically generate hefty profit margins and benefit from a high degree of certainty. Consumers often cannot choose to go without their medications, which provides health-care companies with steady profits and pricing power.
J&J is about as consistent as investors will find in the stock market. J&J grew adjusted earnings per share by 9% last year. Growth was led by its pharmaceutical business, which increased revenue by 12% in 2016.
J&J also has large medical devices and consumer health products businesses, which grew revenue by 4% each.
The medical devices and consumer businesses chipped in with currency-neutral revenue growth of 3.8%. Future growth is extremely likely, due to organic pipeline investments, as well as acquisitions. J&J’s first-quarter adjusted earnings rose 5%.
And, true to form, J&J has an excellent balance sheet. In fact, it is one of just two U.S- based companies to receive the AAA credit rating from Standard & Poor’s.
Mr. Wonderful’s Top Picks: Exxon Mobil (NYSE: XOM)
Last but not least is oil and gas behemoth Exxon Mobil, which constitutes 4.15% of the OUSA portfolio. Exxon Mobil is the biggest of Big Oil. It has a $350 billion market capitalization, which makes it the largest publicly-traded energy company in the world.
Oil can be a boom-or-bust industry, and 2016 fell firmly in the bust category. Exxon Mobil’s earnings-per-share fell 51% in 2016. The reason was because of the company’s massive exploration and production business, which relies heavily on the underlying price of oil for profitability. Exxon Mobil lost more than $4 billion in its U.S. exploration and production business last year.
The great thing about Exxon Mobil is that it is an integrated oil and gas major, meaning it has a large refining business in addition to its exploration and production operations. Refining tends to benefit from falling oil prices, as it helps widens profit margins. Exxon Mobil generated $4.2 billion of refining profits in 2016.
This stability allows the company to consistently raise dividends each year. Exxon Mobil stock is especially attractive for dividend investors. It has a hefty 3.7% dividend yield, and the company has raised its dividend for 34 consecutive years.
Follow the Shark
Mr. Wonderful’s OUSA portfolio is a great way for investors to follow the lead of one of the world’s most famous investors. The fund carries a solid dividend yield of 2.4%, which beats the average dividend yield of the S&P 500 Index. And, the fund has a fairly low expense ratio of 0.4% annually.
This group of Kevin O’Leary’s dividend stocks provides investors with a diversified portfolio across market sectors, and following his lead is an easy way to invest in a basket of high-quality, blue-chip dividend stocks.
Disclosure: The author is personally long AAPL.