The stock market doesn't seem to know what's up and what's down at the moment. A strong dollar, slower growth in China, low interest rates, low oil prices, and low unemployment make for a confusing picture. Both bear and bull investors have strong feelings about where the market is headed.
But the truth is that we don't know whether stocks are going up or down in the short term, which is why a long-term view of the market is the Foolish approach. With that in mind, I've come up with a list of four great dividend stocks that should do well for investors long term, no matter what the market does short term.
The ultimate in diversification
3M (MMM -1.05%) makes more than 50,000 products for everything from cellphones to oil and gas extraction. It's one of the most diverse businesses in the world. With that many products, it has such a wide base that threats to its business aren't broad enough to be a threat to 3M as a whole. In other words, in a turbulent economy, 3M can navigate through tough times successfully.
Just look at how 3M handled the recession in 2008 and 2009. There was a dip in income, but the company is more profitable than ever, and it increased dividends to shareholders throughout, resulting in the 2.8% the stock yields today.
MMM Net Income (TTM) data by YCharts.
3M also has a manageable payout ratio of 48% of earnings right now, meaning it can pour money back into its business for growth. Recently, it's been investing heavily in R&D in an effort to grow organically, and that investment is beginning to pay off. In 2014, that resulted in an impressive 4.9% organic local currency growth.
The combination of steady growth, diversity, and strong cash flow is a winning formula for dividend investors in a rocky market.
Learning lessons from the past
It's been a turbulent decade for General Electric (GE -2.11%). The company's financial arm nearly brought the company to its knees during the financial crisis, and at that time it became apparent that the company had moved too far away from its industrial roots. In a number of moves that will transform the company, CEO Jeff Immelt is selling off most of the company's lending business and returning the company's focus to industrial products and manufacturing, where GE's business was built.
Products like wind turbines, jet engines, power plants, and lighting solutions don't have the same risk as leveraged financial products, so the business should be more stable going forward. And the sale of financial assets will actually result in a smaller GE after the current $50 billion share buyback plan is complete.
As far as a dividend goes, General Electric is yielding 3.4% right now, and has typically maintained a payout ratio of just over 50% (although that ratio was broken with recent losses due to selling financial services businesses). With the renewed focus on industrials and a long history of payouts rising steadily, I think this is a dividend you can count on for years to come.
The steady dividend you've never heard of
Donaldson Company (DCI 0.06%) isn't a household name. The company makes filters for everything from computers to power plants to giant industrial equipment, saving them from wear and tear, and improving performance. You can see from the chart below that Donaldson has a very long history of increasing net income and dividend payouts to investors.
The blip you see recently is related to the company's investigation of revenue recognition timing in its European Gas Turbine Products business. These kind of investigations can shake investor confidence, but long term, I don't think it's a reason to panic.
Donaldson is also well positioned for future growth. Its wares are being designed into new products like industrial equipment from Caterpillar and into natural gas power plants. And it's also developing new solutions for markets like water filtration, which is a multibillion-dollar market that is just now being realized as clean water becomes more scarce around the world. These kinds of opportunities provide a strong future for Donaldson.
With a yield of 2.3% and a long history of dividend increases, I think this is an under-the-radar stock investors should love.
Dividends lead to market-crushing returns
Historically, dividend stocks outperform their non-dividend-paying counterparts, and with a market that's in turbulence, these consistent payouts can also ease investor worries. I think owning industrial stocks that manufacture products and have durable competitive advantages in scale and technology is a way to generate those market-crushing returns. 3M, GE, and Donaldson have those qualities and are great places to start if you're looking for stable dividends in today's market.
