Income investors often re-evaluate their portfolios at the beginning of the year and look to add stocks with strong dividends. While a high dividend yield often drives their choices, it shouldn't be the only factor.
In fact, now is a great time to consider some top dividend stocks that may not have been the market's favorite last year but look promising for 2021. They should have what it takes to protect or even grow their dividends this year. Here are three such compelling dividend stocks you could buy right now.
Get ready to pocket a fatter dividend check
Brookfield Infrastructure Partners ( BIP 0.73% ) is a fantastic dividend growth stock, having increased its dividend every year for the past 11 years and growing it at a compound annual rate of 10% since then. The company typically announces a dividend increase alongside its annual earnings report sometime in the month of February, and this year should be no different.
Brookfield shares picked up pace toward the end of 2020, and the trend could continue. The company delivered strong third-quarter numbers, growing its funds from operation (FFO) by 8% year over year. Brookfield also made two meaningful investments during the quarter worth around $1 billion, which should soon start adding to its cash flows.
More importantly, I expect the company to make bigger growth moves this year as it's flush with liquidity and has several asset sales in the pipeline. Brookfield typically sells mature assets to reinvest the proceeds into higher-return projects, so there's ample scope for a portfolio churn this year.
Combine all of the factors -- the growth potential, robust cash flows, upcoming dividend hike, and a solid dividend yield of 3.9% -- and it makes for an opportune time to buy Brookfield Infrastructure shares.
This 5% yield looks safe
Dow Inc. ( DOW 1.53% ) shares barely managed to end 2020 in the green, but 2021 could shape up well for several reasons.
To begin with, Dow's third-quarter sales grew 16% sequentially on higher volumes as industries reopened after the COVID-19 lockdown and spurred demand from key end markets like automotive, construction, and packaging. With coronavirus vaccines already rolling out and more industries going back to normal, Dow's volumes this year should improve over 2020's.
Also, the market for polyethylene -- a common form of plastic that Dow is a top manufacturer of -- has tightened, with prices on the rise. Dow increased prices for its polyethylene resins sold in the U.S. in mid-December effective Jan. 1, 2021 after announcing a similar hike for December. These factors should boost Dow's top line.
Moreover, Dow is a cyclical stock, so the health of the economy has a strong bearing on its performance. Macro indicators are giving out encouraging signals for now. The purchasing manager index (PMI) from the Institute of Supply Management, for example, jumped more than expected in December on stronger manufacturing activity. The U.S. housing market also looks poised for a post-pandemic recovery.
Meanwhile, Dow is already on a cost-cutting spree, with plans to lay off 6% of its workforce this year and save roughly $150 million. The company already has a strong balance sheet and no substantial debt maturing until 2024. Most importantly, management is committed to maintaining dividends, making this 5%-yielding stock a promising buy for 2021.
This Dividend Aristocrat could be a turnaround stock for 2021
3M ( MMM 2.67% ) received little love from investors in 2020, with its shares ending the year flat versus the S&P 500's 16% gain. It goes without saying that the COVID-19 pandemic was largely to blame, as the pandemic spurred fears of a global recession and hit the cyclicals stock.
All four of 3M's segments, however, showed visible signs of a turnaround in the third quarter, driving the company's sales up 4.5% year over year. In fact, 3M's monthly sales numbers for November were even more encouraging, with total sales rising 8% year over year.
3M now expects to report sales worth $8.2 billion to $8.4 billion for the fourth quarter, versus $8.1 billion in Q4 2019. 3M's Q4 profit could be under a bit of pressure, though, because of restructuring charges, but that shouldn't deter investors. On the contrary, it should set 3M up for a stronger future as the charges are part of management's latest restructuring program, which is expected to save the company $75 million to $100 million in pre-tax savings this year.
Investors can also expect a dividend hike in coming weeks. 3M's last dividend increase in February 2020 was its 62nd such consecutive annual dividend increase, and the stock currently yields a respectable 3.4%. With the company's strong sales momentum and a recovering economy, this Dividend Aristocrat looks compelling for income investors right now.