Kevin O’Leary says “Cash flow is king” – are you spending more than you make?

If you’re a regular watcher of Shark Tank or Dragon’s Den, you’ll know how much Kevin O’Leary, known as Mr. Wonderful, loves cash flow. If a startup has a pitch, they had better be cash flow positive or have a realistic plan to get cash flows into the green.

Furthermore, he’s also a big fan of the types of predictable companies that can grow their cash flows at the hands of management. And that’s with or without a helping hand from Mr. Wonderful himself. Either way, O’Leary isn’t afraid to offer royalty-based deals since there’s no deal sweetener better than royalties, dividends, and distributions. Sure, equity stakes may take precedence, but there’s nothing wrong with embracing cash flow-based deals if it means taking risk off the table or enticing entrepreneurs keen on retaining their equity.

Given O’Leary’s investment style, which is showcased on shows such as Shark Tank, it should be no surprise when he says things like “Cash flow is king.” 

Are you optimizing your cash flows?

For those saving towards a rich retirement, it’s all about maximizing cash coming in and minimizing cash going out. To help jolt one’s cash flow stream, it makes a ton of sense to find more than just one source of cash flow. For many young people, the salary from their work is their one and only source of cash.

Sure, there may be a bit of interest coming in from savings and a few dividends trickling in from stocks, but for many of today’s young investors who’d rather be in red-hot growth stocks, many of which don’t even pay dividends, or cryptocurrencies that also don’t pay cash flows, I do think that adopting O’Leary’s principles could literally pay dividends over the long run.

Sure, dividends may be valued by older investors, especially retirees who live off the passive income coming from their portfolios. And while higher dividend yields don’t necessarily translate to better total returns, I do think that having a preference for stable, growing cash flows and growing dividends (or distributions from REITs) could save investors from trouble once the stock market reverses course.

Cash cow companies could stay dominant in this market environment.

At the end of the day, corrections and crashes are going to happen in the stock market. And if you’re heavy in shares of a firm that isn’t generating positive cash flow, it’s tough to tell how much a stock stands to lose. At the end of the day, it’s the fundamentals (think resilient cash flows, a strong balance sheet, and predictable earnings growth trajectories) that one can lean on in hard times without having to go into a panic.

With growth stocks once again leading the charge lower on the back of Trump’s new auto tariffs, perhaps it’s time to show the cash flows some more love. Of course, younger investors should still value growth. But they should only go for growth if the valuation makes sense. At the end of the day, you’re taking on a great deal of risk if you’re buying shares of a company that you cannot value.

If there aren’t steady, growing cash flows and you’re not well-versed in evaluating unprofitable high-growth companies, you may be taking a shot in the dark as you attempt to value them on the way down. Either way, standing by the defensive cash cows seems like a wise idea at a time like this, when uncertainty makes its biggest comeback in years. The last two years have been easy gains for new investors. The next year or two could prove tougher sledding. And the case for cheap cash cows, I believe, could remain the theme for some time.

Here’s a cash cow that’s gaining ground

Just have a look at AT&T (NYSE:T) stock — it’s up 61% in the past year. Lately, it’s been a major gainer that’s also spoiled investors with impressive dividends. Though the yield is smaller today (at 3.94%) compared to a year ago, I still view the name as worth checking out as it looks ahead to “strong” free cash flows for its first quarter.

With robust cash flows and a mere 18.9 times trailing price-to-earnings (P/E) multiple, T stock could be where the puck is heading next as the market correction continues to unfold. In my humble opinion, T stock is a low-cost option for the fans of resilient cash flows out there. So, if you’re looking to ride out a tariff-filled year, look for the cash cows that are still going for cheap as they could be key to outperforming the S&P 500 on the way down.

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