Why 3M is a Solid Long Term Dividend Stock

Investors are always looking for a sure thing. While is no such ‘thing’ as a sure thing, the principle still remains. Investors want to be reasonably sure that at least some of their investments are going to give them a positive return on their money. Without that assurance, many would-be investors would never enter the market in the first place. This is why people are constantly on the lookout for companies that provide solid income opportunities with minimal risk. While those companies certainly exist, they are not always that easy to spot with certainty. However, some established companies have a proven record of paying out solid dividends every year, while still maintaining a relatively stable stock price. This is appealing to investors who want to reserve a part of their portfolio for income bearing stocks. 3M has become such a go-to company for various reasons.

The Basis of Dividend Stocks

Not every investor is looking to take on the risk associated with investing in companies in exchange for the hope of big returns. Be it stock, ETFs, or bonds, these types of investments can either make you a lot of money, or they can cause your financial downfall. Since many are not up to that risk, income investors have become adept in generating a positive cash flow of their own purely on the basis of the liquid investments that they possess in their portfolio. In fact, many investors will look to dividend stocks as the primary foundation upon which their entire investment portfolio is based on.

To be fair, positive cash flow can also come the interest that one receives from bonds. With those rates at historic lows for some time now, however, dividend stocks have become much more appealing. To be clear, a dividend refers to a real dollar distribution of the earnings that a company realizes each year. This is paid out, usually on an annual bases, to all shareholders. Most investors will look at a dividend in terms the total percentage yield of their investment based upon the stock’s price. It is on this basis that many will conclude that 3M is such a solid long term dividend stock.

A Little Bit About 3M and Its Dividends

3M is based in St. Paul, Minnesota and has been in business for decades. They are focused in the Conglomerates sector of the economy and have shown a willingness to adapt to new trends in the marketplace over time. They are most known for their development of the post-it note. They are also the industrial sector with their line of coatings and ceramics. At the current time, 3M is paying a dividend of $1.44 for every share owned. That equates to a dividend yield of 2.76 percent. This compares quite favorably to other stocks in their sector that average 1.43 percent, and to the current yield of 1.93 percent on the S&P. While small investors might not get rich with this type of yield, it is nonetheless quite stable and reliable. As such, it is a good long term dividend paying stock to invest in.

3M has also exhibited consistent growth in terms of its ability to pay out dividends. It has a current annual dividend of $5.76. This reflects an increase of roughly 5.9 percent over the previous year. The company also hold the distinction of increasing its dividend an impressive five time on annual basis for the last five years. This averages out to an increase of 10.79 percent every year. Again, this is quite impressive for income investors looking towards a stable company to sink much of their portfolio into. In the future, analysts do expect that the continued growth of dividends and the payout ration will be largely dependent on the earnings that the company is able to achieve. This will be one thing to consider, but 3M has a solid history behind it and there are no indicators that anything is going to change in the near term. At the current time, 3M has a payou ration of 55 percent. This reflects the reality that the company has been able to pay out 55 percent its EPS over a 12 month basis as a dividend to its shareholders. The future also continues to look bright, as the current estimate has company share prices stabilizing around the $10.55 per share price. This is yet another increase of roughly 0.86 percent in earnings of the previous year.

Why Dividends?

You might be wondering why somebody would be so interested in dividends when they should be focused on the share price going through the roof. The reality is that investing in many stocks for the pure expectation that share prices will increase quite dramatically is rather risky. While you might hit it big with some stocks, others might fall in the blink of an eye. Companies that focus on a dividend-paying strategy tend to be more measured in their approach to earnings. As such, investors go towards long term dividend-paying stocks in order to increase their overall profit. It also decreases the risk associated with their portfolio. While not every company pays dividends on a quarterly basis, 3M does and is consistent in its action to do so. Because of this, 3M is considered by many to be a solid stock for income investors. It should be held for a period of time, with the expectation of quarterly income and a slight to moderate increase in overall share price over time.

If you are risk adverse, income investing is something to consider. 3M is a company with a proven track record, operating in an industry that is not going anywhere. They are measured in their approach to expansion and work hard to keep debt relatively low in relation to profits. This has enabled them to consistently pay out quarterly dividends, making it a stock worth buying.


Similar Posts

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.