Mar 21, 2023
The failures of Silicon Valley Bank and Signature Bank have spooked depositors and investors. While regulators quickly stepped in to assure that the deposits are safe, Shark Tank star Kevin O’Leary was not impressed.
“What effectively happened over the weekend is that he nationalized the American banking system,” he told CNN, referring to U.S. President Joe Biden. “It's no longer a risk. It's no longer private in any sense. It is now backstopped by the government, ultimately the taxpayer.”
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According to O’Leary, this should change how investors view the sector.
“What’s really happening when the President steps out in a few moments is he's basically saying, ‘look, I can't take this risk anymore, I'm just going to nationalize the whole thing’,” O’Leary said, adding that as banks become more regulated as they get more concentrated, they would be “far less profitable.”
And that does not bode well for shareholders.
“There’s no such thing as a free lunch, and this is going to be very expensive for shareholders of banks long term. I would never put my money into a bank stock ever again.”
So where does Mr. Wonderful put his money?
Dividend stocks
O’Leary is a believer in investing in dividend stocks.
“When I started to do some research I found out one interesting fact that changed my investment philosophy forever,” he said in a Forbes interview. “Over the last 40 years, 71% of the market returns came from dividends, not capital appreciation.”
“So rule one for me is I’ll never own stuff that doesn’t pay a dividend. Ever.”
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If you share the same view, here’s a look at the top two holdings at O’Leary’s flagship ETF — ALPS O’Shares U.S. Quality Dividend ETF (OUSA).
Microsoft
Tech stocks aren’t known for their dividends, but software gorilla Microsoft (MSFT) is an exception.
The company announced a 10% increase to its quarterly dividend to 68 cents per share in September 2022. Over the past five years, its quarterly payout has grown by 62%.
At the current share price, Microsoft provides an annual dividend yield of just over 1%.
The yield may not seem like much, but Microsoft is the currently largest holding in O’Leary’s OUSA with a weighting of 5.26%.
2022 wasn’t nice to tech stocks, and Microsoft was caught in the sell-off as well. Over the past 12 months, shares have fallen by 9.8%.
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But business is on the right track. In the December quarter, revenue increased 2% from a year ago to $52.7 billion. On a constant currency basis, revenue growth was a more impressive 7%.
Given the pullback in its share price, Microsoft could give contrarian investors something to think about.
Home Depot
Home Depot (HD) is the second-largest holding at OUSA, accounting for 4.82% of the fund’s weight.
The home improvement retail giant has around 2,300 stores, with each one averaging approximately 105,000 square feet of indoor retail space, dwarfing many competitors.
While many brick-and-mortar retailers floundered during the pandemic, Home Depot grew its sales nearly 20% in fiscal 2020 to $132.1 billion.
And the company continued its momentum as the economy reopened.
In Home Depot’s fiscal 2022, sales increased 4.1% year over year while earnings per share improved by 7.5%.
Last month, the company raised its quarterly dividend by 10% to $2.09 per share. At the current share price, it yields 2.9%.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
