Kevin O’Leary’s 10 Favorite Quality Dividend Stocks

Up to date on July nineteenth, 2021 by Nikolaos Sismanis

Kevin O’Leary is Chairman of O’Shares Investments, however you most likely know him as “Mr. Great”.

He might be seen on CNBC in addition to the tv present Shark Tank. Buyers who’ve seen him on TV have possible heard him talk about his funding philosophy.

Mr. Great appears for shares that exhibit three foremost traits:

1. First, they have to be high quality firms with sturdy monetary efficiency and strong stability sheets.
2. Second, he believes a portfolio must be diversified throughout totally different market sectors.
3. Third, and maybe most necessary, he calls for revenue—he insists the shares he invests in pay dividends to shareholders.

You’ll be able to obtain the whole record of all of O’Shares Funding Advisor 13F submitting inventory holdings, together with quarterly efficiency, by clicking the hyperlink under:

OUSA owns shares that show a mixture of all three qualities. They’re market leaders with sturdy income, diversified enterprise fashions, and so they pay dividends to shareholders. The record of OUSA portfolio holdings is an attention-grabbing supply of high quality dividend development shares.

This text analyzes the fund’s high largest holdings intimately.

Desk of Contents

The highest 10 holdings from the O’Shares FTSE U.S. High quality Dividend ETF are listed so as of their weighting within the fund, from lowest to highest.

No. 10: UnitedHealth Group Included (UNH)

Dividend Yield: 1.40%

Proportion of OUSA Portfolio: 2.72%

UnitedHealth Group traces its beginnings to 1974 when a bunch of physicians and different well being care professionals based Constitution Med Included. The corporate has been one of many nice development tales available in the market prior to now a number of many years. Contemplating its nice dividend development historical past, we will see why UnitedHealth is amongst Mr. O’Leary’s favourite high quality dividend shares.

United Well being advantages from the rising consumer-oriented well being profit plan market. It has grown its web revenue each single yr within the final decade and thus it has greater than quadrupled its earnings per share over this era. Because of the favorable traits in its enterprise and increasing margins on account of economies of scale, it’s prone to continue to grow its backside line at a double-digit fee within the upcoming years.

The corporate just lately reported its Q2 outcomes, with revenues rising by 14.8% to $71.3 billion, reaching a brand new quarterly report. Following a greater than anticipated efficiency, administration hiked its FY2021 steerage. The corporate is now anticipating EPS within the vary of $17.35-$17.85 (beforehand $17.15-$17.65,) or $18.30-$18.80 on a non-GAAP foundation.

UnitedHealth has grown its per-share dividend for 12 consecutive years, that includes a 3-year DPS CAGR of 18.19%. The payout ratio can also be below 35%, which makes for a big margin of security.

Moreover, the corporate executes important buybacks which have contributed drastically to shareholder returns over the previous decade. Over the previous 4 quarters, the corporate has purchased again $5.46 billion price of its widespread inventory.

No. 9: Pfizer Inc. (PFE)

Dividend Yield: 3.9%

Proportion of OUSA Portfolio: 3.05%

Pfizer Inc. is a worldwide pharmaceutical firm that focuses on prescribed drugs and vaccines. It’s a mega-cap inventory with a market cap of $224 billion. You’ll be able to see our full record of mega-cap shares right here.

Pfizer’s new CEO accomplished a sequence of transactions in 2019 considerably altering the corporate construction and technique. Pfizer fashioned the GSK Shopper Healthcare Joint Enterprise with GlaxoSmithKline plc (GSK), which can embody Pfizer’s over-the-counter enterprise. Pfizer owns 32% of the JV.

Pfizer additionally accomplished an $11 billion deal buying ArrayBioPharma. The spinoff of the Upjohn section was introduced as properly. Pfizer’s high merchandise embody Eliquis, Ibrance, Prevnar 13, Enbrel (worldwide), Chantix, Sutent, Xtandi, Vyndaqel, Inlyta, and Xeljanz.

Pfizer’s present product line is predicted to supply sturdy top-line and bottom-line development within the medium time period. This must be powered by a sturdy demand outlook for its medicines in addition to the continued vaccine rollout which can lead to recurring revenues going ahead as a result of risk for a number of photographs wanted to battle COVID-19.

At present, Eliquis (cardiovascular), Ibrance (oncology) and Xeljanz (rheumatoid artacritis) are all posting sturdy gross sales development. New launches of Vyndaqel and Inlyta are rising quickly as properly.

Development will come from growing U.S. and worldwide gross sales for accredited indications and extensions. Alternatively, development is offset by patent expirations and in addition competitors for Enbrel and Prevnar 13. Going ahead Pfizer additionally has a robust pipeline in oncology, irritation & immunology, and uncommon ailments. We expect 5% EPS development every year.

Pfizer additionally pays a strong 3.9% dividend. In all, we count on 12.1% annual returns over the subsequent 5 years, making Pfizer a pretty dividend inventory to purchase now

No. 8: Cisco Programs (CSCO)

Dividend Yield: 2.8%

Proportion of OUSA Portfolio: 3.21%

Cisco is a worldwide know-how chief. The corporate’s routers and switches permit networks world wide to attach to one another via the web.

Cisco is likely one of the youthful dividend-paying shares in O’Leary’s high 10 record as the corporate has solely paid a dividend since 2011. Since then, its dividend is 12x what it was 9 years in the past. Final yr the corporate grew to become a Dividend Achiever, whereas final February the dividend was hiked as soon as once more by 2.8% to $0.37/quarter.

With an anticipated payout ratio of 46% for fiscal 2021, Cisco will possible proceed rising its dividend nearer to its earnings development fee going ahead.

Cisco brings in annual revenues of practically $50 billion and is a high-margin enterprise. Cisco has positioned itself into extra of a reoccurring income enterprise over the previous few years by specializing in subscriptions.

Supply: Investor Presentation

Cisco reported earnings outcomes for the third quarter of FY2021 on 5/19/2021. Income grew 6.8% to $12.8 billion, beating estimates by $230 million. Adjusted earnings-per-share of $0.83 was $0.01 higher than anticipated and a 5% enchancment in comparison with the prior yr.

Shares of Cisco have a ahead price-to-earnings ratio of 16.7, which is above our goal a number of of 15x earnings. Therefore, a modest valuation compression is just not unlikely. Nonetheless, powered by the present dividend yield of two.7% and anticipated EPS development of 6% per yr, Cisco is is predicted to ship passable medium-term returns.

No. 7: Apple (AAPL)

Dividend Yield: 0.6%

Proportion of OUSA Portfolio: 3.29%

Apple is the biggest firm on this planet by market capitalization. Contemplating that Kevin O’Leary prefers firms that return capital to shareholders, this weighting is likely to be a shock.

Apple is the youngest dividend-paying inventory on this record, having solely distributed revenue to shareholders since 2012. Since then, the dividend has grown greater than 8x in a really quick quantity of interval. That is along with the large variety of shares which have been repurchased through the years.

Apple’s under 1.0% dividend yield, nonetheless, is the bottom yield among the many high 10 largest holdings, however buyers possible approve of this trade-off in revenue for the potential for top capital returns forward.

Regardless of an increasing valuation a number of Apple’s shares maintain working increased over the previous couple of months, with analysts elevating their expectations by way of the corporate’s future earnings potential. Apple’s future continues to be vibrant.

In the latest quarter, Apple generated income of $89.6 billion, representing a 53.7% enhance in comparison with the identical quarter final yr. Product gross sales had been up 61.6%, led by 65.5%, 70.0%, 78.7% and 24.7% respective beneficial properties in iPhones, Mac, iPad, and Wearables. Service gross sales elevated 26.6% and made up 19% of all gross sales within the quarter.

Web revenue equaled $23.6 billion in comparison with $11.2 billion in Q2 2020. Earnings-per-share equaled $1.40 in comparison with $0.64 within the prior yr’s quarter.

Earnings development and dividend yield could also be offset by a big headwind from valuation reversion because the inventory trades with a a number of of 28.6x earnings in comparison with our goal a number of of 18x earnings.

Subsequently, we count on the inventory to supply tiny shareholder returns over the medium time period.

No. 6: Verizon Communications (VZ)

Dividend Yield: 4.4%

Proportion of OUSA Portfolio: 3.4%

Verizon is a telecommunications large. Wi-fi contributes three-quarters of revenues, and broadband and cable providers account for a couple of quarter of gross sales. The corporate’s community covers ~300 million individuals and 98% of the U.S. Verizon has now launched 5G Extremely-Wideband in a number of cities because it continues its rollout of 5G service. Verizon was the primary of the main carriers to activate 5G service.

Verizon reported first-quarter earnings outcomes on 4/21/2021. Income grew 4.1% to $32.9 billion, beating expectations by $440 million. Adjusted earnings-per-share of $1.31 was a 4% enhance from the prior yr and $0.02 forward of estimates.

Supply: Investor Presentation

Verizon had a complete of 326K retail postpaid web additions, together with 6.4 million postpaid gadget activations. Churn stays very low. Wi-fi retail postpaid churn was 0.77% whereas retail postpaid cellphone churn was 1.01%. Shopper income elevated by 4.7% to $22.8 billion, pushed by a restoration in wi-fi tools income because of increased buyer exercise. Wi-fi service income elevated 1.5% to $13.7 billion.

Revenues for the Media section grew by 10.4% to $1.9 billion. COVID-19 has impacted search and promoting income, however Verizon famous that this section continues to see elevated buyer engagement on its digital properties. Verizon continues to count on adjusted EPS development of round $5.00-$5.15 for 2021.

Certainly one of Verizon’s key aggressive benefits is that’s typically thought-about the most effective wi-fi provider within the U.S. That is evidenced by the corporate’s wi-fi margins and really low churn fee. Its dependable service permits Verizon to take care of its buyer base in addition to give the corporate a possibility to maneuver prospects to higher-priced plans. Verizon can also be within the early levels of rolling out 5G service, which can give it a bonus over weaker carriers.

We count on 4% annual EPS development over the subsequent 5 years. The inventory additionally has a 4.4% dividend yield. Along with a small bump from an increasing P/E a number of, we count on complete returns of ~10% per yr for Verizon inventory.

No. 5: Merck & Co. (MRK)

Dividend Yield: 3.3%

Proportion of OUSA Portfolio: 3.54%

Merck is likely one of the largest healthcare firms on this planet. Merck manufactures prescription medicines, vaccines, biologic therapies, and animal well being merchandise. Merck generates annual revenues of $48+ billion.

The corporate has been enriching its remedy portfolio by executing varied acquisitions, reminiscent of its current acquisition of vaccine developer Themis.

Merck introduced first-quarter earnings outcomes on 4/29/2021. Income elevated 0.2% to $12.1 billion however missed expectations by $570 million. Adjusted web revenue of $3,556M, or $1.40 per share, in contrast unfavorably to adjusted web revenue of $3,851M, or $1.50 per share, within the prior yr. As with prior quarters, COVID-19 was a headwind to outcomes. The corporate estimates that the pandemic diminished pharmaceutical income by ~$600 million.

Nonetheless, oncology led the way in which with sturdy efficiency. Most impressively, Lynparza’s gross sales elevated 51%, outperforming administration’s expectations.

Supply: Investor Presentation

Keytruda, which treats cancers reminiscent of melanoma that can’t be eliminated by surgical procedure and non-small cell lung most cancers, continues to develop as gross sales had been up 16% to $3.9 billion. COVID-19 did scale back the variety of new affected person begins, however Keytruda is experiencing sturdy uptake charges for remedy of a number of cancers, together with melanoma and bladder.

Merck’s HPV vaccine Gardasil had a gross sales decline of 16% on account of U.S. shopping for patterns and the timing of shipments to China. Januvia/Janumet, which treats diabetes and is Merck’s second-highest-grossing product, confirmed some indicators of stabilization as income was increased by 1%.

Animal Well being improved 17% to $1,418 million on account of energy in demand for companion animal merchandise, such because the parasiticide line, and companion animal vaccines.

Merck reaffirmed prior steerage and expects adjusted EPS in a spread of $6.48 to $6.68 and income of $51.8 billion to $53.8 billion for 2021. We count on FY2021 EPS of 6.58, which is the midpoint of administration’s steerage.

Merck’s key aggressive benefit is that it’s seeing sturdy development charges in key product areas. Whereas generic competitors is placing strain on sure prescribed drugs, we discover Keytruda’s development fee and peak gross sales expectations very interesting. We count on 5% annual EPS development via 2025.

Merck is a blue chip inventory that yields 3.5%. Additional, we count on a modest valuation enlargement transferring ahead, which together with the inventory’s yield and our projected development charges ought to result in annualized returns of round 13.5% within the medium time period.

No. 4: Procter & Gamble (PG)

Dividend Yield: 2.5%

Proportion of Portfolio: 3.8%

Procter & Gamble is a stalwart amongst dividend shares. It has elevated its dividend for the previous 65 years in a row. This makes the corporate one in every of solely 32 Dividend Kings, a listing of shares with 50+ years of rising dividends.

It has achieved this by changing into a worldwide client staples large. It sells its merchandise in additional than 180 nations world wide with annual gross sales of greater than $70 billion. A few of its core manufacturers embody Gillette, Tide, Charmin, Crest, Pampers, Febreze, Head & Shoulders, Bounty, Oral-B, and lots of extra.

These merchandise are in excessive demand whatever the state of the financial system, making the corporate somewhat recession proof. Many of those product classes have seen strong natural development charges within the first three quarters of fiscal 2021.

And as a result of firm’s portfolio restructuring, renewed effectivity resulted in accelerating natural development over the primary half of the yr.

Supply: Investor Presentation

Procter & Gamble launched fiscal Q3 outcomes on April twentieth. Natural gross sales rose by 4% year-over-year, pushed in large-part by sturdy efficiency within the material and residential care unit because of COVID-19 pushed demand for hygiene tasks and stock will increase.

Income elevated by 5.2% year-over-year to $18.11 billion whereas GAAP earnings-per-share got here in at $1.23, 13% increased year-over-year. The corporate retained its anticipated Fy2021 GAAP EPS development estimated, which it expects to be within the vary of 8%-10% versus FY2020’s outcomes.

Procter & Gamble is seen as delivering 4% earnings development going ahead. Nevertheless, the inventory can also be overvalued on the present degree, buying and selling for a P/E ratio of 24.3 in contrast with our honest worth estimate of 20. If shares had been to revert from the current price-to-earnings ratio to our goal of 20, then valuation could be a ~3.8% headwind to annual returns over the subsequent 5 years.

Whereas we don’t presently fee P&G inventory as a purchase on account of its valuation, P&G is a robust inventory for long-term dividend development and present yield.

No. 3: Johnson & Johnson (JNJ)

Dividend Yield: 2.4%

Proportion of OUSA Portfolio: 4.78%

Johnson & Johnson is likely one of the most well-known dividend shares within the market, so it ought to come as no shock that it’s a high holding for OUSA.

Johnson & Johnson is a healthcare large with a market capitalization of practically $445 billion. It has very massive companies throughout healthcare, together with prescribed drugs, medical gadgets, and client well being merchandise. The corporate has annual gross sales in extra of $82 billion.

On 4/20/2020, Johnson & Johnson introduced first-quarter earnings outcomes for the interval ending 3/31/2021. Revenues grew by 7.9% to $22.3 billion, beating estimates by $280 million. Adjusted earnings-per-share of $2.59 was a $0.29, or a 12.6% enchancment from the prior yr.

Pharmaceutical gross sales grew 9.6%, pushed by an 18.5% enhance in oncology, whereas immunology was up nearly 8% as Stelara continues to take market share for remedy for Crohn’s Illness and Ulcerative Colitis.

Supply: Investor Presentation

Johnson & Johnson’s key aggressive benefit is the dimensions and scale of its enterprise. It invested over $3.2 billion in R&D within the final quarter alone to develop its market share. J&J is a worldwide chief in a variety of healthcare classes, with 26 particular person merchandise or platforms that generate over $1 billion in annual gross sales every. J&J’s diversification permits it to develop every year. It has elevated its adjusted working earnings for 37 consecutive years.

It’s also one of the recession-resistant companies buyers will discover. Within the Nice Recession, earnings-per-share grew by 10% in 2008, and 1% in 2009, at a time when many different firms had been struggling. This resilience provides J&J regular income, even throughout recessions, which permits it to proceed growing its dividend every year.

We count on 6% annual earnings-per-share development over the subsequent 5 years. The corporate’s pharmaceutical pipeline is a serious development catalyst. For instance, final quarter Darzalex gross sales elevated by over 42.2%, whereas Imbruvica’s income elevated by 9%. New merchandise reminiscent of these will proceed to gas J&J’s future development.

J&J is a Dividend King, and it has a superb stability sheet to assist preserve its dividend development. It has a AAA credit standing from Normal & Poor’s. The mix of valuation modifications, EPS development, and the two.4% dividend yield result in complete anticipated returns of ~7.5% per yr over the subsequent 5 years.

No. 2: House Depot (HD)

Dividend Yield: 2.0%

Proportion of OUSA Portfolio: 4.94%

House Depot was based in 1978, and since that point has grown into the main residence enchancment retailer with nearly 2,300 shops within the U.S., Canada, and Mexico. In all, House Depot generates annual income of roughly $130 billion.

House Depot reported first-quarter outcomes on Might 18th. The corporate recorded gross sales of $37.5 billion, a 32.7% enhance year-over-year. Comparable gross sales elevated 31%, and 30% particularly within the U.S. Web earnings of $4.1 billion for the quarter had been up 86% from $2.2 billion YoY. On a per diluted share foundation, $3.86 for the primary quarter elevated 86% from the identical interval a yr in the past.

Supply: Investor Presentation

House Depot’s most compelling aggressive benefit is its management place within the residence enchancment business. Not solely is demand for residence enchancment merchandise rising at a excessive fee within the U.S., however the business is extremely concentrated with simply two main operators (House Depot and Lowe’s) taking the overwhelming majority of market share.

House Depot has additionally confirmed to be extraordinarily resilient to recessions, together with the coronavirus pandemic, which has arguably helped House Depot as shoppers spend far more time at residence. House Depot has a projected 2021 dividend payout ratio simply above 45%, which signifies a secure dividend.

House Depot has generated sturdy earnings development prior to now decade, because it has efficiently capitalized on the housing and building increase that ensued following the Nice Recession of 2008-2010. E-commerce is one other development catalyst for House Depot, as the corporate has invested closely to develop its digital footprint.

House Depot acknowledged that gross sales leveraging its digital platforms elevated roughly 27% final quarter. We see five-year annual earnings development of 9.0%, consisting of comparable gross sales within the mid-single digits, a low single-digit tailwind from buybacks, and a gentle, enhance from working margin enlargement.

The mix of EPS development, valuation headwinds, and the two.0% dividend yield result in anticipated returns of ~9% per yr via 2025.

No. 1: Microsoft Company (MSFT)

Dividend Yield: 0.79%

Proportion of OUSA Portfolio: 5.71%

Microsoft Company, based in 1975 and headquartered in Redmond, WA, develops, manufactures, and sells each software program and {hardware} to companies and shoppers. Its choices embody working methods, enterprise software program, software program improvement instruments, video video games and gaming {hardware}, and cloud providers.

On April twenty seventh, 2021 Microsoft reported its Q3 fiscal yr 2021 outcomes for the interval ending March thirty first, 2021. (Microsoft’s fiscal yr ends June thirtieth.) For the quarter, the corporate generated income of $41.7 billion, representing a 19.1% enhance in comparison with Q3 2021. The expansion was throughout the board with Productiveness and Enterprise Processes, Clever Cloud and Private Computing rising 12%, 20%, and 16% respectively.

Azure, Microsoft’s high-growth cloud platform, grew by 50% year-over-year, persevering with the development of Microsoft’s sturdy place on this ever-growing market. Working revenue got here in at $17.0 billion, representing a 31% enhance. Web revenue totaled $14.8 billion, a 32% enhance, whereas earnings-per-share equaled $1.95 in comparison with $1.40 beforehand.

Microsoft’s cloud enterprise is rising at a speedy tempo because of Azure, which has been rising tremendously for just a few years. Microsoft’s Workplace product vary, which had been a low-growth money cow for a few years, is exhibiting sturdy development charges as properly after Microsoft has modified its enterprise mannequin in the direction of the Workplace 365 software-as-a-service (SaaS) system. Buybacks are a further issue for earnings-per-share development.

Additional, Microsoft shows a positive dividend development report, numbering 19 years of consecutive annual dividend will increase. DPS development includes a 3-year CAGR of 10%.

Microsoft has an ideal moat within the working system & Workplace enterprise items and a robust market place in cloud computing. It’s unlikely that the corporate will lose market share with its older, established merchandise, whereas cloud computing is such a high-growth business that there’s sufficient room for development for a number of firms.

The corporate has a famend model and a worldwide presence, which gives aggressive benefits. Microsoft can also be comparatively resilient towards recessions, and like J&J has a AAA credit standing.

Sadly, Microsoft inventory seems overvalued, with a ahead P/E ratio of 36.2. Our honest worth estimate is a P/E ratio of 24. Anticipated EPS development of 8% and the 0.8% dividend yield will enhance returns, however general complete returns are estimated at simply ~2% per yr.

Ultimate Ideas

Kevin O’Leary has turn out to be a family title on account of his appearances on the TV present Shark Tank. However he’s additionally a well known asset supervisor, and his funding philosophy aligns very intently with ours. Particularly, Mr. Great usually invests in shares with massive and worthwhile companies, with sturdy stability sheets and constant dividend development yearly.

Not all of those shares are presently rated as buys within the Positive Evaluation Analysis Database, which ranks shares primarily based on anticipated complete return on account of a mixture of earnings per share development, dividends, and modifications within the price-to-earnings a number of.

Nevertheless, a number of of those 10 shares are helpful holdings for a long-term dividend development portfolio.