Guest post written by Josh Arnold for Sure Dividend
We believe the best path to long-term wealth generation is to own high-quality dividend stocks with good yields, long dividend increase streaks, and the ability to continue raising dividends through recessions. The selling we’ve seen in stocks in 2022 has created some extraordinary opportunities in high-quality dividend stocks, including the exclusive Dividend Aristocrats.
This is a group of just 65 S&P 500 components with at least 25 years of consecutive dividend increases, and the list is littered with great retirement stocks.
In this article, we’ll take a look at three with at least 4% yields, and strong dividend safety characteristics.
3M Company (MMM)
Our first stock is 3M Company, a diversified technology and consumer products company that operates worldwide. 3M has four operating segments that collectively produce tens of thousands of different products: Safety and Industrial, Transportation and Electronics, Health Care, and Consumer. 3M makes an enormous array of consumables such as dentistry supplies, masks, tapes, packaging materials, films, wound care, and more. It also makes more durable products such as purification systems, braces, software, temperature management products for heavy vehicles, and the list goes on.
3M was founded in 1902, generates in excess of $35 billion in revenue per year, and trades with a market cap of $75 billion.
3M is not only a Dividend Aristocrat, but it actually has one of the longest streaks of dividend increases in the world at 64 years. The company has been a strong retirement stock for decades, and today, the stock yields 4.5%. That’s not only about triple that of the S&P 500, but it’s also very high by 3M’s own historical standards.
Despite 3M’s dividend streak, its payout ratio is still quite low at just over half of earnings for this year. 3M has done a nice job over time of putting in reasonable dividend increases, roughly commensurate with earnings growth, to create a sustainable path to higher dividends. Given the relatively low payout ratio, we see the company’s dividend safety as exemplary.
This is particularly true when one considers earnings are expected to grow at about 5% annually in the coming years, and that because 3M’s revenue and earnings are fairly predictable, it makes the dividend all the more reliable.
Finally, while 3M is susceptible to recessions in part, most of its revenue and earnings are non-discretionary, so it holds up well during tough economic periods. There is perhaps no better evidence of its recession resilience than the simple fact that it’s raised the dividend for more than six decades consecutively.
Leggett & Platt, Incorporated (LEG)
Our next stock is Leggett & Platt, a company that engineers and markets components for various types of end-user goods globally. The company operates through three segments: Bedding Products, Specialized Products, and Furniture, Flooring & Textile Solutions. Through these segments, Leggett & Platt, makes the components of products like mattresses, beds, lumbar and massage systems for automotive seating, hydraulic components, and various other related products.
The company was founded in 1883, generates about $5.3 billion in annual revenue, and trades today with a market cap of $5.1 billion.
Leggett & Platt also has a tremendously long dividend increase streak, which stands at 51 years. Like 3M, that makes Leggett & Platt a Dividend King, in addition to a Dividend Aristocrat. This streak is impressive in its own right, but especially so given the products that the company makes components for tend to be highly discretionary. The company’s recession resistance, despite this, has proven to be good enough to raise the dividend through thick and thin for the past half-century.
The stock yields 4.5% today following heavy selling thus far in 2022. That’s somewhat elevated for Leggett & Platt, but it’s generally a high-yield stock given the generous dividend.
The company’s payout ratio is just over 60% for this year, so it should be quite safe, even in the event that we are in a recession. Part of the reason we find the dividend growth story to be intact is that we expect Leggett & Platt to grow earnings at about 5% annually in the coming years, meaning it should be producing plenty of capital to continue to boost the dividend over time.
V.F. Corporation (VFC)
Our final stock is V.F. Corporation, a company that designs, markets, and distributes branded lifestyle apparel, footwear, and accessories for men, women, and children globally. The company operates three segments: Outdoor, Active, and Work. Through these, V.F. creates a wide variety of apparel and accessory products, through its portfolio of well-known brands including JanSport, Vans, Supreme, Timberland, Dickies, and more. V.F. sells through specialty and department stores, mass merchandise chains, as well as its own retail stores and e-commerce sites.
The company was founded in 1899, produces around $12.4 billion in annual revenue, and trades with a market cap of $18.6 billion.
V.F. Corporation’s dividend streak stands at 49 years, which again, is all the more impressive due to the inherently discretionary nature of the products it sells. Apparel and footwear are notoriously cyclical, but the company has stood the test of time through various recessions and continues to raise the dividend.
Today the stock yields 4.2%, which is extremely high by its own standards, given V.F. generally yields closer to 2%. That makes it an outstanding bargain today as a retirement stock.
The payout ratio is projected at about 60% of earnings for this year, so we do not see any kind of dividend risk playing out with V.F., even if there is a recession in 2022 or 2023.
Further, we project robust 7% earnings growth going forward, which will afford management the ability to raise the dividend without undue stress on its financials.
Final Thoughts
While the selling in 2022 has been tough to endure, we find great bargains abound in dividend stocks. When looking for great retirement stocks, we like to begin with the Dividend Aristocrats because they’re proven winners when it comes to dividend sustainability over time. 3M, Leggett & Platt, and V.F. Corporation have all produced dividend streaks of at least half a century, and all yield in excess of 4% today. Given this, we find these to be very high-quality retirement stocks, and rate them a buy.
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