On an absolute basis, a 3% yield doesn't sound like all that much, but when the S&P 500 Index is yielding a scant 1.5% or so, 3% is pretty generous. The trick, however, is to put the yield into an even broader context. This is why value-conscious investors will probably like 3M (MMM 1.68%) and those with a growth focus will likely appreciate Brookfield Infrastructure Partners (BIP 0.48%).
1. More than the pandemic
Iconic industrial stock 3M, formerly known as Minnesota Mining and Manufacturing, is cyclical. That means its results tend to go up and down with broader economic activity, and its stock generally follows along for the ride. So 2020, which included a pandemic-driven recession, was not a particularly good year for the company. Sales were basically flat while adjusted earnings were off by 1.5%. All things considered, that wasn't too bad. That said, the company is looking for revenue growth between 5% and 8% in 2021 and earnings to rise as much as 10%. That is pretty good.
The stock is now a touch higher than it was in early 2020, but it is still 27% below the highs it reached in early 2018. In other words, the pandemic hit is over, but there's still a lingering issue here that investors need to get their heads around. One of the big reasons for the lagging stock is that 3M is facing two material legal challenges, one related to product quality and the other to environmental issues. With an investment-grade balance sheet and a massive $100 billion market cap, however, it is likely to handle any hit in stride. But the uncertainty surrounding these lawsuits is keeping investors away.
And that is opening up an opportunity for dividend investors. 3M's 3.2% dividend yield hasn't been this high since the 2007 to 2009 recession and is toward the high end of its historical range. In other words, if you can handle a little uncertainty, the stock looks like it is on sale. Adding to the allure, 3M is a Dividend King, with an incredible 62 years of annual dividend increases behind it. The average annual increase over the past decade, meanwhile, was around 10%. If you are a dividend investor, a value investor, or a mix of the two, 3M is worth a deep dive today.
2. An opportunity ahead
The next name up isn't exactly cheap, given that master limited partnership Brookfield Infrastructure Partners' 3.8% yield is at the low end of its historical range. This is not a good choice for investors with a value focus. That said, there are some reasons to like the name for those with a growth-oriented approach.
For starters, the distribution has been increased every year for 13 consecutive years. It only went public in 2008, so it has basically increased the payment every single year of its existence. The average annualized increase over the past decade, meanwhile, is a fairly generous 11%. That's nearly four times the historical rate of inflation growth, notably increasing the buying power of the distribution over time. Dividend growth investors should find these statistics appealing.
And it looks like there's still material opportunity ahead, as the world, including the United States, looks to upgrade aging infrastructure and build new infrastructure from the ground up. In fact, even during pandemic-hit 2020, Brookfield Infrastructure Partners' revenues, earnings, and funds from operations were all higher year over year. Moreover, the partnership believes it can continue to sustainably grow funds from operations between 6% and 9% a year, driven by a combination of price increases, global growth, and opportunistic investments. Meanwhile, it has a broad, globally diversified portfolio across which to invest, including assets in the utilities, transportation, energy, and data infrastructure spaces. While it isn't cheap, if it can live up to its growth projections, which seems reasonable based on its past success, growth-minded income investors will probably find Brookfield Infrastructure Partners appealing.
Nothing is perfect
Neither Brookfield Infrastructure Partners nor 3M is a great fit for every investor. But that's OK. Value-focused types looking to buy good companies with generous yields while they are on sale will probably like 3M today. Those looking for dividend growth stocks, meanwhile, will probably find Brookfield attractive, despite its elevated valuation. It is unlikely that you'll want to buy both of these names, but if you take the time to dig in here, one or the other might just fit with your investment approach.