3M (MMM 0.38%) and Stanley Black & Decker (SWK 0.03%) have two of the longest dividend-paying streaks in the market. Not all companies pay dividends to their shareholders, but when one successfully does so for decades -- as 3M and Stanley Black & Decker have -- that generally reflects that it's a strong business with a history of growing revenue and profits.
At the moment investors have a once-in-a-decade opportunity to buy these top income stocks while their dividend yields are elevated. Share prices of 3M are now down 64% from their peak, which helped lift its dividend yield to over 5%. Shares of Stanley Black & Decker are trading down about 59% from their all-time high, which bumped its yield up to about 4%.
What's got share prices for these two companies down so much, and why are these two companies still dividend-producing opportunities? Let's see if we can find some answers.
1. 3M
3M has been around since 1929, and while many of the products it makes are not necessarily considered cutting-edge, boring companies can still make great investments. 3M is famous for Scotch tape and Post-it notes, but there are 60,000 products in its brand portfolio, all of which drive consistent sales volume and profits that fuel growing dividends to shareholders.
The conglomerate has increased its dividend payouts annually for 66 straight years, and at the current stock price, it offers an attractive yield of about 5.6%. It's unusual for a business as strong as 3M to suddenly be offering such a high yield.
In this case, the big price drop reflects the fact that 3M faces significant litigation risks. One big liability concern relates to its Aearo Technologies unit fighting several legal battles over what plaintiffs claim were defective military-grade earplugs.
The industrial giant is also dealing with liabilities related to its production of so-called "forever chemicals." The efforts to clean up contaminated environments near plants that produced these chemicals is likely to lead to years of litigation. The issues surrounding these chemicals have pushed management to phase out their production, which itself will result in costly write-downs.
While these lawsuits (which will likely cost billions) create some uncertainty about 3M's future, especially with respect to how much money it could be required to pay out in settlements or judgments, the market has a history of overestimating liability risks in high-profile cases.
For example, consider the BP oil spill in the Gulf of Mexico in 2010. In the wake of that environmental disaster, the oil company's stock plummeted as the market worried about the magnitude of lawsuits and fines it would face, but investors who took advantage of that plunge to buy on the dip did very well. BP is still going strong. There are plenty of other high-profile cases involving large corporations where the market turned out to significantly overestimate the long-term impact of litigation risk on the business.
When you are presented with the chance to buy a blue chip stock that has been paying dividends for over half a century at a high yield, you should take it.
MMM Dividend Yield data by YCharts.
I recently added a small position in 3M to my portfolio. Another reason to like the conglomerate is its strong cash flow -- it generated adjusted free cash flow of $4.7 billion on revenue of $34.3 billion last year amid a challenging economic environment. Out of that cash flow, it paid $3.4 billion in dividends and spent $1.5 billion on share repurchases.
3M continually invests in new product development, which helps it maintain a wide competitive moat. For example, its new robotic paint repair system received recognition for driving innovation in automotive manufacturing, and its new Scotch Cushion Lock Protective Wrap was chosen by Fast Company as a finalist for its 2022 World Changing Idea Award.
But the combination of litigation risk and a slumping economy have created a great opportunity to add this high-yield blue chip stock to your retirement account.
2. Stanley Black & Decker
Another leading consumer and industrial goods manufacturer is Stanley Black & Decker. Now the owner of Craftsman tools as well as its namesake brands, it has been in business in some form since 1843. It's been paying a dividend for 146 years, and it has a streak of 55 consecutive years of dividend increases. The stock's recent tumble has brought the yield on this Dividend King to about 4%.
Over the last 30-plus years, Stanley Black & Decker offered a yield this high only a handful of times. In this case, it's due to the fact that Wall Street is focused on the suboptimal business environment, with inflation driving up operating costs and putting pressure on the company's profitability.
But note that the previous spikes in Stanley Black & Decker's yield also came during bear markets. The company won't always face inflationary headwinds or softening demand for its products, which is why the stock has always proven a great choice to buy during such bouts of weakness.
SWK Dividend Yield data by YCharts.
Though it was a challenging year, in 2022, the company still grew revenue by 11% and delivered adjusted earnings of $4.62 per share. That puts the stock's price-to-earnings ratio at a modest 17.5 -- a discount to the S&P 500's ratio of 22.
Management is working to improve its cost structure so that it can grow profits as the economy recovers. Last year, it sold its electronic security, access technologies, and oil and natural gas businesses for a total of more than $4 billion. Those divestitures will help center the company's operations around its core brands in tools and industrial products. Additionally, management is looking to cut $500 million in costs by the end of this year.
The great thing about investing in Stanley Black & Decker is that you know what this business will be doing for many years. Changing technology isn't going to disrupt power tools much. This is why the company has been in business for so long and why retirement savers can depend on growing income from its stock for many more years.
