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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
3M in Focus
Headquartered in St Paul, 3M (MMM) is a Conglomerates stock that has seen a price change of 13.24% so far this year. The maker of Post-it notes, industrial coatings and ceramics is currently shelling out a dividend of $1.48 per share, with a dividend yield of 2.99%. This compares to the Diversified Operations industry's yield of 0.31% and the S&P 500's yield of 1.38%.
Looking at dividend growth, the company's current annualized dividend of $5.92 is up 0.7% from last year. Over the last 5 years, 3M has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.85%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. 3M's current payout ratio is 58%. This means it paid out 58% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, MMM expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $10.05 per share, which represents a year-over-year growth rate of 14.99%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MMM is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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3M Company (MMM) : Free Stock Analysis Report
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