Kevin O’Leary is a multi-millionaire entrepreneur and investor who’s one of the key members of the television show, Shark Tank.
Renowned for his no-nonsense approach, he’s known as Mr. Wonderful – a tongue-in-cheek reference to his bluntness.
One of the things he’s most blunt about?
Money. Specifically, he likes to make sure that he invests his money in a way that almost guarantees he’ll get a return on it.
Today, I want to share with you why that’s so smart, why I also invest this way, and how you can replicate his approach.
Let’s dig in.
There’s one word that I think you should always associate with Kevin O’Leary: Dividends.
O’Leary loves dividends. And so do I. Besides his famous run on television’s Shark Tank, he runs ETFs appropriately referred to as O’Shares.
Dividends. Especially growing dividends.
Take OUSA, for instance. This is the O’Shares U.S. Quality Dividend ETF (OUSA).
What are its two top holdings?
Microsoft Corp. (MSFT), and Johnson & Johnson (JNJ).
We just put out a video only days ago on these two stocks being among the very best stocks in the world to buy for safe, growing dividends.
Great minds think alike!
Mr. Wonderful’s love for dividends apparently has its roots in valuable lessons from his own mother.
Kevin’s mother told O’Leary and his brother this: “Boys, you never spend the principal, only the interest.”
And then she’d take them along to the bank as she went down to collect her dividend checks.
When Kevin O’Leary grew up and started researching the stock market, he came to realize just how correct his mother was.
When asked by Forbes why he loves dividends so much, he was quick to note this: “Over the last 40 years, 71% of the stock market’s return came from dividends, not capital appreciation,”.
Kevin O’Leary’s mother had it right on the mark.
If you spend down your principle, you’re essentially slaughtering the golden geese that lay the golden eggs. And that’s a pathway to potentially finding yourself with no principle or income down the road.
Then there’s the deals he does on Shark Tank.
If you ever watch this show, you’ll notice that Kevin O’Leary will almost always seek out a unique structure to his deals where he asks for a royalty in perpetuity.
Instead of just fronting cash for an equity stake, he’ll try to get that equity stake and get a royalty in perpetuity. This is just a fancy way of saying “I want a dividend”.
Mr. Wonderful likes to structure his deals this way because wants to make sure that he starts collecting a return on his cash immediately, regardless of what eventually happens to the equity.
This does two things. It reduces risk. And it also strongly motivates the business to turn a profit in order to afford those royalties.
See, Kevin O’Leary knows that only a company actually producing profit can pump out consistent royalty payments. Likewise, only world-class enterprises can afford to pay their shareholders growing dividends, year in and year out, for decades on end.
And if a company isn’t turning a profit and can’t afford rising dividends, why invest at all?
As Kevin would say, we’re here to make money.
One of his best deals was made with the owners of Wicked Good Cupcakes on Season 4 of Shark Tank.
Check this out…
He made a deal where he would get $1 for every cupcake sold until he got his money back (which he did within 74 days) and then 45 cents on every cupcake sold in perpetuity.
Talk about a golden goose laying golden eggs!
Every time someone buys a cupcake, Mr. Wonderful collects what amounts to a very sweet dividend.
More cupcakes? More royalties.
And that’s essentially what dividend growth investing is all about.
Let’s say you invest in Procter & Gamble Co. (PG). This is a global consumer products company that has 22 different $1 billion brands – including the likes of Bounty and Tide.
If you own stock in Procter & Gamble, you capture a tiny portion of the profit they earn every single time someone buys, say, Tide laundry detergent. The more detergent they sell, the more profit there is for you to capture.
And you eventually capture that profit portion through the growing dividend Procter & Gamble pays its shareholders – a dividend that’s been growing for 64 consecutive years!
So if you want to invest like Mr. Wonderful, insist on investing in businesses that pay growing dividends.
As O’Leary correctly notes, most of the stock market’s long-term return comes by way of dividends, not capital gains.
And reinvesting growing dividends is a way to supercharge this, as we recently discussed.
Take it from Mr. Wonderful’s mother, Mr. Wonderful himself, or me.
Invest in high-quality dividend growth stocks that can send you growing dividends in perpetuity.
Kevin O’Leary’s mother said it decades ago. Leave the principle alone. Spend down the dividends only.
Let the golden geese lay ever-more golden eggs.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
