If you like dividends, then you are probably looking for stocks paying decent dividends now, with the potential to increase them for many years to come. In this context, I think industrial stalwarts nVent Electric (NYSE:NVT), 3M (NYSE:MMM), and UPS (NYSE:UPS) are worth buying. Here's why.

nVent Electric

This electric products company is a rare pocket of value in a market where it's getting harder to find attractive valuations. nVent is one of those boring but necessary companies that investors often overlook. On closer inspection, however, the company does have some exciting growth prospects, not least from the megatrend of electrification.

A woman holding cash

Image source: Getty Images.

Whether it's electric vehicles (EVs) and charging stations, industrial automation, smart buildings and infrastructure, or renewable energy investment, the economy is electrifying. That's a trend only likely to increase as the Internet of Things creates more interconnected devices and applications.

nVent's is a "picks and shovels" provider to the electrification movement. The company operates out of three segments. The enclosures segment makes electrical enclosures that connect and protect communications and power equipment. The electrical and fastenings segment provides fastening and support products for customers looking to connect electrical and mechanical systems. Finally, the thermal management segment provides wiring, sensing, control, and monitoring equipment to prevent heat damage.

It all adds up to a collection of essential items purchased whenever industrial companies, building owners, and infrastructure builders invest in electrical systems. Moreover, the company is an excellent generator of free cash flow (FCF) and currently trades on a price-to-FCF multiple of less than 16. As such, nVent could, in theory, return 6.3% of its market cap to investors in the form of a dividend by just paying its FCF in dividends.

NVT Price to Free Cash Flow Chart

Data by YCharts.

With a current dividend yield of more than 2%, lots of FCF, and good long-term growth prospects, nVent is an excellent option for dividend investors.

3M

This industrial giant is far from a perfect company. After a few years of underperformance, notably in its consumer and healthcare businesses, the stock lost the premium valuation it used to hold in the industrial sector. In addition, it still faces potential liability issues over previously producing PFAS chemical compounds. 

That said, much of the bad news is already priced into the stock, and CEO Mike Roman is taking hard action to turn around the company. Costs have been cut, 3M now reports out of four instead of five segments, and the company's operating structure has been changed. Also, its businesses are now run globally rather than on a country-by-country basis. 

Moreover, the healthcare segment has been restructured after multibillion-dollar acquisitions (in health information systems and wound care) and divestitures (of a drug delivery business).

Unfortunately, the pandemic has somewhat distorted the optics around the turnaround efforts -- not least by boosting 3M's coronavirus-related sales of items like respirators and safety products and hurting its more cyclical products like adhesives, tapes, and automotive products.

That said, it remains a prodigious generator of FCF, and Roman has plenty of financial firepower to carry on restructuring a company that contains a multitude of well-regarded products. In common with nVent, 3M trades on a favorable price-to-FCF multiple and has a very well-covered dividend.

MMM Price to Free Cash Flow Chart

Data by YCharts.

As such, investors can think of 3M as a good value option that pays a near 3% dividend yield while they wait for management's actions to translate into an improvement in margins and growth.

UPS

Last but not least, UPS sports a near 2% yield, but the potential for dividend increases over the long term is significant. It's no secret that the package-delivery giants have a long-term opportunity from burgeoning growth in e-commerce.

But while the potential volume increase from online deliveries has never been in doubt, the ability of UPS to grow margins and FCF along with it has been a debating point for investors. In a nutshell, business-to-consumer (B2C) e-commerce deliveries can be bulky, inefficiently packaged, and often go to costly-to-reach residential addresses. Moreover, UPS and FedEx have both had to ramp up capital expenditures to service increased volume. The result is that profit margins get squeezed, and FCF gets reduced.

packages on a conveyor belt

Image source: Getty Images

That said, UPS CEO Carol Tome is determined to improve margins and stretch the limits of the company's assets in order to improve earnings and FCF. She's made it clear that UPS' focus will be on growing profitable accounts rather than just chasing volume growth. Also, capital spending has been dialed down in line with the emphasis on generating earnings from existing assets.

In addition, there's hard evidence that the company's efforts to develop relationships in the small and medium-size business sector (SMB) are paying off, with volumes and revenue per piece growing vigorously at the same time in the U.S. 

All told, UPS looks set for substantial growth in earnings and FCF in the coming years -- something likely to lead to dividend growth over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.