Between them, Procter & Gamble (NYSE:PG) and 3M (NYSE:MMM) have 120 years of consecutive annual dividend raises under their belts. Those amazing track records are a testament to the entrenched market positions that these two Dow giants command.

They aren't interchangeable income investments, though. Below, we'll look at why a dividend investor might prefer to buy one of these stocks over the other right now.

A jar of coins marked "dividends".

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Dividend comparison:




Dividend yield



Payout ratio



Last raise



Consecutive annual raises



Data source: Company financial filings.

3M for diversity and profits

Even though P&G's business is larger than 3M's, its operations are significantly less diverse. 3M's consumer products segment represents just 15% of sales, in fact, while other divisions, including healthcare and electronics and energy, each take up a greater proportion of the revenue base.

That diversification gives 3M flexibility to continue growing even during periods of weakness in a single segment. The consumer products division expanded by less than 1% last quarter, for example, but heftier gains in each of its other four segments led to overall organic growth of 3%. Procter & Gamble, in contrast, is highly sensitive to the soft global sales environment for branded consumer goods. As a result, organic revenue expanded at a lackluster 2% pace in the most recent quarter. 

Investors can expect that performance gap to continue. 3M in late July raised its 2017 growth outlook to target organic gains of between 3% and 5%, while P&G is forecasting a more modest range of between 2% and 3%. 

PG Return on Invested Capital (TTM) Chart

PG Return on Invested Capital (TTM) data by YCharts.

3M edges out the consumer products specialist on key financial metrics, too. Its operating margin is significantly higher, at 24% compared to 21%. 3M's return on invested capital, a key measure of its efficiency, also trounces P&G's.

P&G for cash returns

Among the best reasons to like P&G as a dividend stock right now is its commitment to shower its shareholders with direct cash returns. Sure, recent dividend increases have been relatively small (1% in 2016 and 3% in 2017). But P&G's overall cash returns have been much stronger. It sent $22 billion to shareholders over the past 12 months, including $15 billion allocated toward reducing its share count.

The outlook for future income growth is solid, too. P&G's payout ratio, the percentage of earnings that's required for dividend payments, is back down below 50% after peaking at over 100%. That leaves the management team free to its their pace of dividend boosts and likely widen the gap in yields between these two companies.

Why buy 3M?

In my view, 3M is the better dividend stock to buy today. Sure, it has a weaker yield. But the consumer and industrial products conglomerate is enjoying robust sales growth that, in addition to showing off the power of its diverse collection of revenue streams, suggests steady market share gains.

Procter & Gamble can't make that same claim. In fact, it has seen its market share slip in each of the last three fiscal years, including in key franchises like the Gillette shaving brand. Until P&G can prove it can consistently outgrow the markets it competes in, its long-term stock price and dividend growth will likely trail the returns of more effective industry leaders like 3M.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.