Every investor has a different approach to picking their investments, but when it comes to selecting the best dividend stocks, there are few key things everyone should keep mind. Choose companies that are financially strong enough to continue their payouts far into the future, are able to make regular increases to their dividends, and are also positioned to provide income investors with solid yields.
Many companies fit those basic criteria, but Microsoft (NASDAQ:MSFT), 3M (NYSE:MMM), and AT&T (NYSE:T) are standouts in that category that investors should consider because of their solid dividend histories and their competitive advantages in their respective markets.
An old tech leader with new possibilities
If you haven't considered investing in Microsoft in a while, it's time to take another look at the company. The tech giant has a modest 1.9% forward dividend yield right now, but it also has 14 consecutive years of dividend increases.
Income investors should also take into consideration that Microsoft is quickly establishing itself as a formidable cloud computing player. Just a few months ago, it reached CEO Satya Nadella's goal of an annualized revenue run rate of $20 billion for its cloud computing business. The company surpassed that mark by about $400 million, and did it earlier than expected.
That's notable because the cloud computing market will be worth an estimated $411 billion by 2020 and Microsoft already has an about 11% share. That trails Amazon's 40% market share, but with its recent moves, it's firmly establishing itself in this space and staying ahead of other competitors like Google.
Microsoft may not be the highest-yielding dividend payer out there, but its ability to reinvent itself as a major cloud computing company means that there's still plenty of life left in this tech stalwart. Add to that the facts that Microsoft consistently pays its shareholders and even outpaced analysts' earnings expectations last year, and you can see why investors can confidently bet it will be a solid dividend play for years to come.
A steady investment for the long haul
If you're looking for a stock that will pay you consistently and that you'll almost never have to worry about, look no further than 3M. The company's 1.9% yield is balanced out by its 100 year record of dividend payments, its 59 consecutive years of dividend increases, and its overall financial stability.
This industrial conglomerate takes a very long-term view, and often invests in new products that take many years to start bringing in revenues. For example, the company's films for smartphone displays were just a thought when they began developing them years ago, but now bring in strong revenues for the company.
3M can afford to make these long-range bets because it has more than 60,000 products in its arsenal, and its content to achieve slow, consistent growth rather than skyrocketing sales. In that vein, sales ticked up by just 6% and GAAP earnings were up 8% in 2017's third quarter. But income investors will be pleased to hear that 3M returned $701 million to its investors in Q3, and spent $308 million on share buybacks as well.
3M is a stock that can easily weather any economic storm -- and it's already been through plenty. Its consistent payouts and long-term focus should add stability to any investor's portfolio.
A telecom giant betting on new content opportunities
Last, but not least, is the telecom giant AT&T. The company marries a strong dividend yield of 5.4% to 33 consecutive years of dividend increases, which makes it a compelling long-term dividend play.
AT&T, of course, makes most of its money from its wireless services; it's the nation's second-largest wireless provider, behind Verizon Communications.
But AT&T is interested in far more than just smartphone plans these days. The company also owns DirecTV, and is currently duking it out with Department of Justice as it tries to buy Time Warner. If that deal goes through, it would give AT&T ownership of CNN, HBO, Warner Bros.' films and a host of other media channels. There's still plenty of uncertainty surrounding this deal, but even if it completely falls through, AT&T will still be in a position to pursue other opportunities.
The company is also investing in 5G technology, and said recently that it will be the first U.S. telecom to introduce mobile 5G service into "dozens of markets this year." 5G offers faster data transmission than LTE, and the company believes the technology will be vital to making mobile virtual reality, driverless cars, and wireless immersive 4K video practical.
Its stock failed to keep up with the S&P 500 last year, but AT&T's long history of dividend increases and its current yield still make the company a solid dividend play. And if AT&T manages to close the Time Warner deal, investors will have even more to look forward to.
Keep this in mind
As with any stock investments, investors should remember to take the long view with these companies. That makes 3M the most appealing dividend stock to me of these three, mainly because it has a long history of riding out turbulent times and still building wealth for its investors. AT&T and Microsoft have similar potential, but as always, investors should figure out which companies best align with their long-term investing goals.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Verizon Communications. The Motley Fool recommends 3M and Time Warner. The Motley Fool has a disclosure policy.