What have you accomplished over the last two-and-a-half decades? Some of you reading this might not have even been born 25 years ago. Companies that make the Dividend Aristocrats list can boast having increased their dividend payouts at least once a year over the past quarter of a century. That's a pretty impressive feat when you consider that that 25-year timeline spans the Great Recession and two other smaller recessions, the dot-com boom and bust, and the rise of Internet-based businesses that made some long-standing brick-and-mortar companies outdated almost overnight.
Here are a couple of Dividend Aristocrats that stood the test of time and are some of the best dividend stocks money can buy.
3M Company (NYSE:MMM)
3M has paid out dividends to cash-hungry investors for 98 years without a single interruption and has significantly increased its dividend hikes in recent years: 3M increased its 2015 dividend by 20% on the heels of a 35% increase in 2014. The dividend now sits at $4.10 per share, which equates to a yield of 2.8%. The good news for investors is that the company still has a bright future.
3M is roughly in the middle of a five-year plan that has been aimed at improving the management of its business portfolio, revamping research and development, and focusing on emerging markets for growth. 3M has already made significant strides in narrowing its business focus, as you can see in the graphic below, which has helped the company reduce costs, accelerate R&D investments, and increase its manufacturing scale.
Further proof of those developments helping its financial performance can be found in 3M's second-quarter highlights. Operating margins checked in at 23.9% in the second quarter of 2015, which was a healthy improvement of 110 basis points from last year.
What many investors overlook about 3M is the fact that about half of its business is consumables, while the other half consists of goods used by original equipment manufacturers in their products. That essentially means the vast majority of 3M's products generate recurring revenue throughout the product life cycle.
3M's annual financial goals through 2017 will be free cash flow conversion of 100% or higher, return on invested capital of at least 20%, and organic revenue growth between 4% and 6%. The company met all three of those objectives in 2014, and as it continues to reduce costs, increase scale, and pour cash into R&D for future products, expect it to continue to grow while dishing out higher dividends in the years ahead.
Since Wal-Mart's stock price has shed roughly 16% this year, it could be a good time to pick up shares of a Dividend Aristocrat at a discount. A decade ago, Wal-Mart's dividend was $0.60 per share, but has more than tripled to its current level of $1.96, for a healthy yield of 2.7%. The company has competitive advantages that should enable it to continue paying out dividends, and it could also have an e-commerce growth story to interest investors.
Wal-Mart's competitive advantage revolves around its unrivaled business scale, which enables the company to operate at lower costs than its competitors. As the company's stores popped up in markets across the U.S. and consumers flocked to the store for its one-stop shop convenience, Wal-Mart leveraged its sheer size as the largest retailer in the world to lower costs from suppliers and then built a brand image around passing those savings to shoppers.
In recent years, though, Wal-Mart was feeling the pressure from low-cost dollar-store competitors. Wal-Mart's strategic response was to open smaller Neighborhood Market stores, which should counter the competition from the smaller dollar stores.
The other key aspect of Wal-Mart beating the market in the near term, in addition to paying investors a healthy dividend, will be growing its Internet presence. Wal-Mart is putting its money where its mouth is after telling investors it would pour between $1.2 billion and $1.5 billion into its e-commerce business in 2015.
That cash will go toward launching a shoppers club, which could be compared to Amazon Prime, since it will charge consumers a yearly fee for free shipping. Wal-Mart is also aiming to make its website more user-friendly, with more products listed for sale. Wal-Mart is even requiring users to create accounts on its website so it can use data to better focus online product recommendations to consumers.
Wal-Mart is already king of brick-and-mortar retail, and while the company won't turn its website into an Amazon-like Internet retail king overnight, it still offers a compelling growth story along with its long-standing history of increasing dividends.
Daniel Miller has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.