To paraphrase investment legend Warren Buffett, when you buy a stock you should act like you're buying the whole company. That's how you need to think if you're looking to buy a stock and hold it for 20 years or more. If you can work within that framework, then you should be looking at 3M (MMM 0.46%), Federal Realty Investment Trust (FRT), and Total (TTE 1.10%) today. All three look like they're on sale, and worth owning for decades to come.
1. A steady industrial giant
Although 3M's 3.4% dividend yield may not seem huge, it is toward the high end of the company's historical dividend range, and hasn't been this high since the 2007-to-2009 recession. That suggests the shares are relatively cheap today. It's a cyclical stock, so the relatively cheap price makes some sense given the declines in economic activity from the coronavirus. However, for long-term investors, this is a buying opportunity.
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The company has increased its dividend for over six decades. It takes a great company to build a streak like that, and it shows a huge commitment to shareholders. In fact, even with the current headwinds, 3M is still performing quite well. Its worst division in the third quarter had an operating profit margin of 23.5%. Despite COVID-19, earnings were off by just 6% or so year-over-year. One key to that is the company's globally diversified business, which it spreads across its safety & industrial (36% of revenue), transportation & electronics (27%), healthcare (26%), and consumer divisions (the remainder). Under those broad categories are products from Post It notes to surgical supplies, all driven by an innovative, science-driven culture. If you want a company that can do pretty well even when times are tough, 3M is worth a closer look today.
2. A landlord that has great property
The next name here is real estate investment trust (REIT) Federal Realty. Like 3M, it has an incredible dividend history, with more than five decades of annual increases under its belt. Its 4.7% yield is also toward the high end of its recent history, and hasn't been this high since the last recession. In other words, this is a well-run company that appears to be on sale, too.
MMM Dividend Yield data by YCharts
Unlike 3M, Federal Realty is legitimately struggling today. It owns a collection of around 100 shopping centers and mixed-use properties. It has been difficult for retail landlords to collect rent during the pandemic, as many stores ended up getting shut down by the government. In October, Federal Realty was still only able to collect around 85% of its rents. That's not great -- but don't count this REIT out. It has a carefully curated portfolio of properties located in wealthy neighborhoods. In fact, during Federal Realty's third-quarter 2020 earnings conference call, management discussed how it has been attracting new tenants looking to upgrade from nearby locations run by different landlords. In other words, this REIT owns assets that tenants want to be in and that consumers want to shop at. That's a long-term winning strategy in real estate.
3. An energy giant that's changing its stripes
Next up is the riskiest of the trio: France's Total. The company is an integrated energy giant, meaning that it is operating in one of the most unloved sectors on the planet. That helps explain its huge 7.5% dividend yield. Once again, that's near the high end of the company's historical yield range.
There are two key things to note here. First, oil and natural gas are out of favor today for environmental and economic reasons, given the shutdowns being used to slow the spread of the coronavirus. However, oil is not going away overnight, and the supply/demand imbalance that exists today will eventually resolve itself, as has happened many times before. And the company has the staying power to muddle through this rough patch, with management explaining again during Total's third-quarter 2020 earnings conference call that it can sustain its dividend as long as oil averages around $40 a barrel.
Longer term, the company is working to use the cash flow from its energy business to shift toward cleaner alternatives, with a near-term goal of 15% of revenue coming from "electrons" by 2025. So it is shifting along with the world it serves, and that makes it well worth owning for long-term investors.
Dig into these dividend stories
If the quick dives into 3M, Federal Realty, and Total have piqued your interest, you should take some time to get to know them in more detail. If you do, you're likely to find that diversified industrial giant 3M, well-located landlord Federal Realty, and electrifying oil giant Total have long-term places in your dividend portfolio. And the best part is that each one looks like it's on sale right now.
