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Why 3M (MMM) is a Top Dividend Stock for Your Portfolio

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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 for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

3M in Focus

Based in St Paul, 3M (MMM - Free Report) is in the Conglomerates sector, and so far this year, shares have seen a price change of -16.16%. The maker of Post-it notes, industrial coatings and ceramics is paying out a dividend of $1.49 per share at the moment, with a dividend yield of 4% compared to the Diversified Operations industry's yield of 0.4% and the S&P 500's yield of 1.6%.

In terms of dividend growth, the company's current annualized dividend of $5.96 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 4.72%. 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 60%, meaning it paid out 60% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, MMM expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $10.85 per share, representing a year-over-year earnings growth rate of 7.21%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that MMM is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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