Dividends create wealth. The power of regular dividends to make you rich is Wall Street's worst kept secret. Better yet, companies that grow their dividends like clockwork, year after year, know how to line a shareholder's pocket with gold. Let's take a look at a stock that does exactly that: 3M (MMM 0.10%) is both a longtime Dow Jones (^DJI 0.30%) component and an overqualified Dividend Aristocrat.
A company can become an official Dividend Aristocrat simply by increasing its payouts every year for a mere 25 years in a row. 3M beats that benchmark by a country mile, having raised dividend payouts for 55 years running.
The annual raises aren't huge, but 3M's unbeatable consistency still lifts shareholder returns over the long term. Compare and contrast 3M's unstoppable increases with the slower and less reliable dividend bumps of two other Dow stocks:
MMM Dividend data by YCharts
General Electric (GE -3.22%) does its best to keep shareholders happy, but its dividend aristocrat status was shot down by the financial crisis in 2008. It's easy to forget just how huge GE's financial arm is, but GE Capital actually accounts for 30% of GE's total revenue and nearly 60% of its operating income today. And that's after making a serious effort to refocus on industrial operations with a smaller banking profile.
The company is in a constant state of flux as GE reshapes itself into a leaner, meaner industrial conglomerate. And the upshot of this strategy is, you really can't expect GE to completely heal its wounded dividend policy anytime soon. GE might be great if you're looking for straight-up share price gain, but 3M may be the healthier choice for long-term income investors.
MMM Total Return Price data by YCharts
AT&T (T -0.24%) offers a 5.5% dividend yield today, the richest payout on the Dow. But the telecom isn't exactly putting its back into the dividend policy, growing its payouts just 2.8% a year -- far slower than 3M's 6.7%. AT&T's dividend-boosted shares have beaten the Dow over the last decade, scoring a 112% rise versus the Dow's 69%, because the smartphone era has been very kind to Ma Bell. But this dividend isn't exactly going places.
3M's faithful dividend bumps are backed by an equally constant tradition of innovation. Post-it Notes share shelf space in 3M warehouses with air filters, medical tape, computer screens, car paint treatments, and a long list of other products. This list keeps 3M's dividends strong and helps the stock beat the Dow just as easily as AT&T shares did over the past decade -- without leaning on some singular catalyst like the smartphone boom.
3M can take a licking and keep on ticking as the company moves to brand new end markets all the time. That's how you build a Dividend Aristocrat for the ages.
