The Dow Jones Industrial Average (^DJI +0.11%) is chock-full of industry-leading dividend-paying companies -- making it a great place to look for stocks to boost your passive income stream.
In addition to paying dividends, some Dow stocks -- like 3M (MMM 0.09%), Honeywell International (HON 0.25%), and Cisco Systems (CSCO +0.71%) -- are also a good value relative to their earnings.
Three Motley Fool contributors were asked to offer up reasons why all three of these Dow stocks could be worth buying in February. Here's what they had to report.
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Management is putting 3M on the right track
Lee Samaha (3M): The company's dividend yield is useful for investors, but it's not the main reason for buying 3M stock. The key to the investment case for 3M lies in the ongoing restructuring initiatives its management has taken. By ongoing, I mean the fruition of the restructuring done by former CEO Mike Roman (job cuts, cutting unprofitable product lines, downsizing facilities and management layers, spinning off the underperforming healthcare business, and changing its go-to-market model in certain countries) and the initiatives being taken by current CEO Bill Brown.
As previously discussed, Roman's initiatives have improved profit margins, and their benefits will also run through into 2025. Brown aims to take 3M further, rejuvenate its pipeline of new product introductions through focused research and development, and fundamentally restructure the company to improve its operational performance.
Key Data Points
While the exact details of Brown's medium-term plans will be released at the investor day event on Feb. 26, investors already know that Brown plans to improve 3M's asset utilization, reduce the number of days it holds inventory before selling it, improve its ability to make on-time in-full deliveries to customers and reduce its cost of goods sold (COGS).
These improvements are the bread and butter of operational performance, and improving them will generate margin expansion and more cash flows for investors that can be returned. Meanwhile, if Brown can return 3M to its former glory regarding new and innovative product generation, it can also improve its revenue growth rate.
As such, 3M is a value stock and a turnaround prospect for investors. A 2% dividend yield doesn't hurt either.
Honeywell is getting a major makeover
Daniel Foelber (Honeywell): The industrial conglomerate's stock is trading down 7.8% year to date, with almost all of the sell-off occurring in the two days after Honeywell reported fourth-quarter and full-year 2024 results. The company's results were decent but not great -- with 3% organic sales growth and a 5% jump in operating income. For 2025, Honeywell forecasts just 2% to 6% year-over-year growth in adjusted earnings per share.
The lack of growth is even worse, considering Honeywell spent $9 billion on bolt-on acquisitions in 2024.
Besides the 2025 guidance, the biggest news from the earnings release was Honeywell's blockbuster announcement to split into three publicly listed companies. On Oct. 8, 2024, Honeywell announced a plan to spin off its Advanced Materials business by the end of 2025 or early 2026. So there was already some form of a breakup in the cards.
Pressure from activist investor Elliott Investment Management pushed Honeywell to consider splitting the remaining business into two separate entities -- aerospace and automation. The 23-page letter, published by Elliott in November, urged Honeywell to break up to rekindle innovation and prevent a bad habit of losing market share to competitors. Investors initially received the news favorably, pushing Honeywell stock to an all-time high.
NASDAQ: HON
Key Data Points
In December, Honeywell formerly announced it would consider the split and would have more updates for investors when it reported its fourth-quarter earnings -- which is exactly what happened. But this time, the stock fell following the news, perhaps because the breakup isn't expected to be complete until the second half of 2026, and the guidance between now and then is weak. Or maybe it's because investors are realizing the breakup won't automatically fix Honeywell's issues.
Either way, buying Honeywell stock now is a bet on the breakup being the right strategic decision for the company. The stock price is roughly the same at the time of this writing as it was four years ago. So Honeywell's slowing growth has been arguably factored into its languishing stock price.
With a 24.1 price-to-earnings ratio and a 2.2% dividend yield, Honeywell is an intriguing value stock for dividend investors because the stock could look like a bargain in hindsight if the spin-off goes well. However, some investors may prefer to buy their favorite aspect of Honeywell's business post-spin-off instead of buying the conglomerate, and thus, all three separate entities today.
Cisco offers broad exposure to rapidly growing corners of the tech world
Scott Levine (Cisco Systems): Taking a break from your Valentine's Day shopping to show a little love to your portfolio? Smart move. Choosing a Dow Jones dividend stock is a great choice for generating reliable passive income, and networking specialist Cisco looks like an especially appealing choice right now as its stock offers a 2.6% forward dividend yield.
NASDAQ: CSCO
Key Data Points
With a $249 billion market capitalization, Cisco is the largest communications equipment option available to investors. Motorola, for example, is its closest peer by market cap with an $80 billion market cap. The company provides investors with broad exposure to various tech niches, including cloud computing, artificial intelligence (AI), cybersecurity, and the Internet of Things -- all areas projected to experience significant growth in the coming years. The global cloud computing market alone is projected to grow from $752.4 billion in 2024 to $2.4 trillion in 2030.
Tech stocks aren't traditionally sought after for their dividends, but Cisco flies in the face of naysayers looking for passive income. For one, the company has demonstrated consistent interest in rewarding shareholders over the past decade. From 2014 to 2024, for example, Cisco's dividend has grown at an 8.2% compound annual growth rate. Plus, the dividend is on solid ground.
Cisco has averaged a conservative payout ratio of 55% for the past five years. And that's not the only perspective from which the dividend looks secure. Over the past decade, Cisco has consistently generated ample free cash flow to source its dividend, illustrating how management is not willing to jeopardize the company's financial well-being to placate shareholders.
