How would you like to get a raise every year for doing absolutely nothing?
That's exactly what investors are getting with Dividend Aristocrat 3M (NYSE:MMM), which has been paying a dividend for 98 years and has increased its payout for 57 years straight. Dividend Aristocrats are a small group of stocks that pay long-term dividends that have grown steadily over time, giving investors a consistent payout. Next year, 3M's dividend will go up 20% to $1.025 per share in the first quarter, and investors will once again get a raise for doing absolutely nothing.
Where 3M's dividend comes from
The chart below shows a lot of what you need to know about 3M's increasing dividend. The dividend has gone up as free cash flow has gone up. Management has used that extra cash to pay shareholders and buy back shares, which gives us a larger percentage of future free cash flow.
Just as important as the financial results is how 3M gets to this long-lasting growth dividend. At its core, that's what investors are really buying.
A diverse business that touches almost everything
On the stock market, a lot of attention goes to the hottest stocks of the moment. Electric cars, 3D printers, and the Internet of Things capture our attention for a few years and before you know it, the momentum is gone. But hot stocks can become cold and investors may not be left with a company that can make them money for decades, much less centuries.
3M takes a different approach. It builds technologies and then finds ways to spread them into an ever-widening number of businesses. Scotch Tape, the Post-it Note, Scotchgard, and Security Film may be core products, but they weren't the intended business 3M set out to get into. It's actually a failed mining company that learned how to develop technology and leveraged the products it could make to adapt and grow into new markets.
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Over the past century, 3M has spread its influence into almost everything we do. It has exposure to electronics, energy, consumer goods, health care, and much more. This gives 3M a very diverse business, and when combined with the fact that over 70% of its revenue comes from overseas, it won't see too many highs or lows from any market. It's slow and steady for 3M.
A trusted partner in business
One of the things that often goes overlooked with 3M is that it's a needed partner for many emerging products. New products like smartphones or EVs or even solar panels use 3M's products as integral components. Developers of these products don't want to learn how to make components like high-grade adhesives, they want to buy one that's already developed. Smartphone developers don't want to make brightness-enhancing films themselves, they want to buy one from a high-quality supplier.
This dynamic means that new products are more of an opportunity for 3M than they are a threat to its existing business. And it's not risking the farm if a new product doesn't work out. Few companies can say that.
One of the best dividends on the market
When you consider the diverse and steady business 3M has built and the fact that management has consistently demonstrated the ability to increase its dividend every year for 57 years, I don't think there's a better dividend stock on the market. Other dividends will come and go, but 3M's dividend is as solid as they come. That's why it's a Dividend Aristocrat and will likely stay one for a long time.