Great dividends often come from overlooked corners of the market. Cigarettes, water, diapers, and garbage are just a few of the commodities that help make great dividend stock companies profitable. As we look for great dividend stocks in the industrials segment, I think Waste Management (WM 0.97%), UPS (UPS 0.02%), and 3M (MMM 0.86%) are all being overlooked by investors.
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Garbage into cash
Garbage and recycling may not be a sexy business, but it's very profitable. Waste Management has built a national infrastructure and contracts with local municipalities that have slowly but surely grown the business over the course of decades into what it is today.
You can see below that growth has stagnated somewhat, in part because of the pandemic; closed businesses have been canceling or reducing garbage and recycling services. But over the long term, the company has grown revenue steadily in the low-single digits. Net income is choppy as well, but you can see that Waste Management is solidly profitable year after year.
WM Revenue (TTM) data by YCharts
The dividend payout has grown to yield 1.7%, which is modest by market standards, but given the stability in the waste industry, that's reasonable for investors. And management has been able to increase the dividend at a faster pace than earnings have grown because it's bought back 27.5% of its shares since the beginning of 2005.
Garbage and recycling aren't going to be high-growth or high-margin businesses, but they're about as steady as it comes from an operational standpoint. And Waste Management has a leadership position, which is why investors should love the dividend long term.
Shipping dividends to you
UPS has been an overlooked stock for years because it's in a business that constantly seems like it's under competitive pressure. Amazon relied on the company for years only to begin building its own shipping infrastructure, which seemed like it could be a disruption. But now the growth of direct-to-consumer businesses has made the company an essential service again. And that should make investors confident that this 1.9% dividend yield has room to grow.
The chart below shows the steady growth trajectory UPS has been on. Like Waste Management, it's not going to blow investors away with double-digit growth, but over time the steady increase in volume and prices will drive higher revenue and earnings.
UPS Revenue (TTM) data by YCharts
On the bottom line, there's incredible volatility connected with oil prices and investment in capacity expansions. But the company has proven to be profitable even in the toughest operating environments, and with online shopping only increasing, it seems there should be tailwinds behind the business.
Competition is always going to be tough in the shipping business, and there are threats from places like Amazon and the U.S. Postal Service, which is effectively backstopped by the U.S. government. But I like UPS's position more today than at any time in the past decade. I think we're seeing more shoppers go directly to niche retailers that will never have the ability to build their own shipping infrastructure (like Amazon did). And that should increase UPS's power in the market over time, helping grow this dividend even further.
The everything company
3M has proven to be both a troubled company and an absolute necessity around the world over the past year. The company's sales have stagnated, innovation that drove the company in the 20th century has slowed, and even the pace of dividend growth has stalled. At 2.9%, the dividend yield is decent but not one of the highest on the market.
But there's a reason I think this is a great dividend stock long term, and that comes down to the company's diversification. 3M is involved in everything from smartphones to gas pipelines to medical devices. That makes it a necessity for companies and consumers around the world. There are a couple of challenges 3M has been up against when it comes to growth. One is that global competition has picked up as manufacturing in Asia has improved, and 3M also hasn't come up with the next big product to drive growth. At the same time, 3M has sold businesses like its drug-delivery business and has been rumored to be looking at selling its food-safety business, which helped drive a reduction in net debt.
MMM Revenue (TTM) data by YCharts
3M has its flaws, but that's one of the reasons I like the dividend today. It has a higher yield than the other stocks I've mentioned in part because investors are questioning the company's growth long term. But innovation can be unpredictable and so can the new markets 3M has typically built with products like the Post-It Note and Scotch Tape.
If new innovations do drive growth, the stock and dividend have a lot of upside. At worst, this is a company much of the globe depends on for consumer and business staple products, which will keep the dividend going for the foreseeable future given the highly profitable business 3M is operating.
Great dividends that are under our noses
Infrastructure stocks can have slower growth than others on the market, but they're steady operators, and that's what dividend investors should like. And it's the steady growth and increase in profits from Waste Management, UPS, and 3M that make them the top industrial dividend stocks to buy today.
