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Why Kevin O鈥橪eary Loves Dividend Stocks | OUSA ETF - YouTube
Channel: Dividend Data
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investor kevin o'leary is incredibly
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successful and estimated to be worth
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over
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400 million dollars he's best known for
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his role in the hit show
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shark tank of which i'm a big fan
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however what you may not know
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is that kevin loves investing for
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dividends so much so that he launched
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his own etf focused around quality
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dividend-paying companies
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throughout this video i will explain why
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mr wonderful loves dividend stocks and
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analyzed his o shares dividend etf
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[Music]
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[Applause]
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[Music]
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[Applause]
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[Music]
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[Music]
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my name is zach and you should leave a
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like and subscribe to the channel if you
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enjoy
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the video today i want to show you why
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kevin o'leary prefers investing in
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dividend paying stocks and give an
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overview of the etf he designed
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specifically to do so
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rather than have me explain kevin's
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philosophy it's better to hear it from
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mr wonderful himself
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my mother used to take a third of her
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paycheck and put it into
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large cap dividend-paying stocks and
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corporate credit
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back in the early 60s and when she died
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this portfolio existed for 50 years and
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as an executive the first time i got to
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look at it
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she'd hidden it from both of her
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husbands it was amazing if dividend
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paying stocks
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and corporate credits over 50 years you
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can't find anything that beats that
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and so when i started doing some
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research i found out one interesting
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fact that changed my investment
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philosophy forever
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over the last 40 years 51 for sorry over
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the last 40 years
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71 of the market's returns came from
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dividends not capital appreciation
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so rule one for me is i'll never own a
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stuff that doesn't pay a dividend
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ever if you look at the volatility in
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the market around
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names that don't pay dividends they're
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extremely volatile because there's no
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cushion of yield what's what's the value
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of a stock
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that never returns capital to its
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shareholders i don't know
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because the only way you can make money
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is if somebody else is willing to buy
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that position
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at a higher price for some emotional
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reason
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perhaps or for some you know foresight
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that
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maybe the company will return capital
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one day and i think of
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you know what when you learn as an
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investor over
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multiple decades is the only thing that
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matters is
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free cash flow that's it there is no
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other reason to own a stock
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and with that philosophy it brings you
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into a place
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where you focus on a company's ability
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to generate
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incremental cash flow because just
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owning a dividend paying stock is not
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good enough because
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you know let's say we find a stock today
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that's paying a three percent dividend
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yield and tomorrow because
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it's forecast for sales get cut in half
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the stock drops by 50 percent now it's
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yielding six percent
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i don't want to own that stock either so
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my tests in this index
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that i've you know created with ftse
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russell looks at the balance sheet
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every year we test to make sure that the
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company is viable
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in its ability to generate cash this is
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extremely conservative investing this is
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for the long
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haul these tools are not for as you're
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suggesting
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for spicy you know the hot stock du jour
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i've done that i've been there you know
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let the young legs do that i have zero
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interest in that i don't care what the
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hot new stock is
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you know when when a company comes
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public i won't own it either it's got to
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prove to me
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over multiple years that i can continue
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to generate cash
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before it even fits into what i'm doing
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so i'm really boring and i like it that
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way
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we're talking about real money here
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the stuff that you need to preserve you
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know when i think about my family trust
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i can't afford to mess around with that
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in my world you never touch your
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principal
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you adjust your spending habits your
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gifts to charities
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your use of capital based on how much
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you can generate from your portfolio
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i view my portfolio and my trust and my
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positions
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as a chicken on a spit dripping cash
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everything has to generate yield whether
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it's a fixed income position
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or an equity it has to it the only
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reason it can be in my world is
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generating capital back to me
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i take that i disburse it the family
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lives off that the charities i've
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committed to
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so i'm always looking for a company that
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can help me with my problem of
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generating more yield everything that
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i mean i can't even imagine buying a
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stock that doesn't pay a difference why
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would you do that
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what would be the reason you would do
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that i don't get it so to me
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that means about 28 of the market
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to me is just speculation a staff that
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doesn't pay a dividend is a speculation
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it's not an investment you look at
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companies that don't pay distributions
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don't return capital how risky they are
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take a gopro for example
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i'm not just picking one company i'm
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just giving you a good example of a
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company
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that basically has lost 70 percent of
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its value never returned a dime to
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shareholders
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or how about a company that's been
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around much longer yahoo never paid a
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dividend
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it's never made money for anybody except
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all the ceos that have gone through
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there and got whacked
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it's just a rotating door where
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management extracts capital
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never returns any to shareholders and i
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think look at that and say to myself why
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don't i just avoid that all together
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if it doesn't pay a dividend i know that
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71 percent of the time all the returns
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come from dividends
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why should i own stock doesn't pay a
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dividend and i never will
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remember back in the late 90s i'll use
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one example toys.com
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i was an investor in toys.com i went to
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zero never made any money
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and i grew a little four inch charlie
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munger on my shoulder when that happened
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and he appears you can't see him but
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he's on my shoulder every time i'm
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getting pitched
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a deal like lyft or uber and charlie
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says only one thing
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if it has no cash flow just say no
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and i have listened to my little charlie
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ever since the late 90s and i've been
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right
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100 of the time this company
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is value-less it doesn't have any cash
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flow it's a speculation
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let's summarize kevin's major points
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cash flow is a priority when making an
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investment decision this makes sense
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because positive cash flow is the only
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real way to return capital as
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shareholders
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as warren buffett likes to remind people
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a stock is just a small part of a
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business
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therefore the principles that apply when
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buying a stock are the same if you were
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to own a whole business
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you need to produce a profit and get a
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return on invested capital as a business
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owner if you can't generate positive
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cash flow then you can't make money
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the only other way is to sell the
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business to someone else for more who
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themselves
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would hope to eventually see a return or
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sell it again as kevin says this is just
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speculation
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ultimately if your business has no path
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to generating cash flow then it has no
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value to long-term shareholders
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kevin uses this line of logic to support
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investing in dividend stocks
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a dividend is the only vehicle through
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which a shareholder can see a return
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without selling some of their position
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he also mentions the stat that 71
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of total market returns are from
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dividends not capital appreciation
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on top of this a lot of what kevin looks
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for in his investments is stability and
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diversification
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it's for this reason that he designs his
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dividend etfs with this in mind
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i got a lot of comments on my most
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recent monthly update video asking about
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potential dividend etfs
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so today we're going to take a look at
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kevin's u.s dividend etf
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ousa hi i'm kevin o'leary from shark
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tank and chairman of oh shares etfs
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many people ask me about investing and
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the ets
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i have in my portfolio here's how i
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invest in u.s
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large cap stocks ousa an etf with over
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100 large cap quality dividend stocks
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it has given me great performance and
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dividend income
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i don't want all the 500 biggest
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companies just the higher quality
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companies
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so i own ousa here's the best part i get
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performance that has kept up with the s
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p
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500 with 30 percent less downside
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during stress events this is a u.s
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large cap etf that i helped built and is
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in my portfolio
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as kevin alluded to earlier in this
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video dividends are responsible for the
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lion's share of market returns
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why is this it has to do with the
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principle of compound interest
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albert einstein once stated compound
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interest is the most powerful force in
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the universe
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this is shown by the following chart
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since 1957 the price return of the s
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p 500 is over six thousand five hundred
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percent
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the total return which includes the
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impact of dividends and compounding is
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over 46
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000 this means that approximately 80
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percent of the hypothetical total return
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that investor would have earned
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is attributable to dividends and
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compounding to make this even better
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profitable dividend-paying companies
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have the ability to maintain
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and grow their dividend payments over
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time from 2010 to 2019
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the dividends per share paid by the
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companies in the s p 500
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have more than doubled with a growth
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rate of nearly 11 percent per year
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all right so let's take a look at what
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companies are in ousa
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if you're a fan of my channel then you
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may recognize some of these names
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all usa's top holdings as of december
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2020 are microsoft
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johnson and johnson home depot procter
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gamble
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mercanco verizon pfizer apple
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cisco honeywell united health group
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amgen
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coca-cola lockheed martin pepsico and 3m
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in total the etf has 101 holdings and is
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curated to include
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high quality large market cap
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dividend-paying companies
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healthcare is at 22 information
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technology at 21
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consumer staples at 16.5 percent
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industrial is at 14.8 percent and so on
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since the fund's inception in july 2015
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it has seen a 52
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price return additionally it pays out
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monthly dividends to shareholders that
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vary by amount based on the dividend
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return of the portfolio that month
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here you can see the most recent
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distributions per share
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the annual dividend yield tends to be
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2.08 percent which is pretty low but
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higher than indexes like the s p
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500 o usa has an expense ratio of 0.48
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percent which means you pay an
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annual fee of 0.48 percent your assets
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in that fund
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this is meant to pay for management fees
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administrative fees
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operating costs and all other costs
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incurred by the fund
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this is the crux of why i don't like
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etfs and managed funds
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you lose a portion of your assets every
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year to fees
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even if the fund loses money or did no
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better than you could have on your own
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in the long term these fees could be a
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big cut to total returns
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also i just like to have greater control
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over my investments in these funds you
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have no say about what they choose to
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invest in
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for example in december 2019 ousa had
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9.3 percent of their portfolio in the
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energy sector with 5
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total in exxon mobil and 3.24
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total in chevron in 2020 they sold out
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completely and have zero percent energy
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concentration in their portfolio
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now i know that the sector was hit badly
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in 2020 and their value decreased
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dramatically but i think companies like
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exxon and chevron will be able to bounce
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back in 2021 and beyond
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they have strong balance sheets and were
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able to hold their dividends through the
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worst year in the history of oil
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if anything ousa should have reloaded at
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a lower cost per share
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they felt so strong about these
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companies just at the beginning of 2020.
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etfs are unwilling to take short-term
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losses for long-term gain and have
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little risk tolerance the reasoning for
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this is because they must maintain and
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grow value for their clients
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if they take large short-term losses
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then their clients will pull out and
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will send their funds spiraling down
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give me my money back this is not
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necessarily a shot at ousa and more just
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etfs in general
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i think ousa is a fine dividend etf and
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is ideal for investors who want to start
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dividend investing but don't want to do
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their research or pick stocks themselves
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if you're not interested in etfs there
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is still value to doing some research
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into dividend funds
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you can look to see what their holdings
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are and it could give you a good
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reference
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point and ideas for your own portfolio
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although kevin expresses his love for
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dividends and invests a significant
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portion of his net worth in ousa
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he does break his rule about not
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investing in stocks that don't pay a
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dividend
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you know here's an example of one that's
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turning the corner for me that i'm
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actually investor in
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tesla why because i can now
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see the path to profitability i'm up
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38 on tesla the only reason i bought it
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is my son
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got in a job as a you know basically an
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apprentice there an intern
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and i said trevor on your behalf i'm
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going to buy a bunch of stock because
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the stock down's 13
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today that a bad quarter and within six
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months the thing is now breaking even or
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it even looks cash flow positive a
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quarter or two
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so as a result the market has regraded
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that stock
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and it's up over 30 percent and i rest
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my case your honor
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it's turning into a real company that
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makes money for shareholders
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some may call them hypocritical but i
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think gross stocks have a place in your
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portfolio as well
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i've been an investor in tesla since
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2016 and it's by far my best performing
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stock
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additionally kevin has another etf
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called ogig
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this focuses on global internet giants
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like amazon
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alibaba facebook alphabet microsoft
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shopify etc
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this fund is up 112
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this year alone dividend investing is by
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no means a religion you must follow
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exclusively but it's a good addition to
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your portfolio and can help you build a
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passive income stream
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thank you for watching dividend data i'd
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greatly appreciate if you could leave a
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like and subscribe to the channel
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if you follow me on twitter link in the
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description you can get real-time
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updates of my buys and dividends coming
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in
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you can support the channel over on
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patreon and be a part of helping make
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these videos happen the link is in the
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description
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please leave a comment below and thank
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you for watching
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you
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