3M’s Dividend Risk Is Rising, So Buy These 2 Higher-Yielding Alternatives

Summary:

  • 44% of US stocks suffer permanent “catastrophic” 70+% declines, and not even dividend aristocrats are 100% safe.
  • The Dividend Kings use a 3,000-point safety and quality model looking at over 1,000 metrics to warn investors against potential value traps.
  • 3M’s earnings and guidance were terrible, with a dividend payout ratio close to 100% in 2023. We just downgraded our safety score to 63% and the quality score to 91%.
  • 3M remains a high-quality though speculative company. It’s trading at the lowest price in 10 years, the lowest PE in 15 years, and the highest yield in 27 years.
  • While 3M has 12% to 13% long-term return potential and could potentially soar to almost 80% in 3 years, here are two superior higher-yielding blue-chip options firing on all cylinders.

Money falling

Kativ

This article was published on Dividend Kings on Monday, February 27th, 2023.

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To paraphrase Thomas Jefferson, “Eternal vigilance is the price of financial liberty.”

Even the strongest blue-chips can occasionally fall on hard times. And sometimes, they never recover.

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JPMorgan Asset Management

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Justin Law

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FactSet Research Terminal

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FAST Graphs, FactSet

Rating Dividend Kings Safety Score (250 Point Safety Model) Approximate Dividend Cut Risk (Average Recession) Approximate Dividend Cut Risk In Pandemic Level Recession
1 – unsafe 0% to 20% over 4% 16+%
2- below average 21% to 40% over 2% 8% to 16%
3 – average 41% to 60% 2% 4% to 8%
4 – safe 61% to 80% 1% 2% to 4%
5- very safe 81% to 100% 0.5% 1% to 2%
3M 63% 1% 2.8%
Risk Rating Low Risk (89th S&P Global percentile risk-management) A Negative Outlook credit rating =0.66% 30-year bankruptcy risk 2.5% or less max risk cap- speculative

Company DK Long-Term Dependability Score Interpretation Points
Non-Dependable Companies 20% or below Poor Dependability 1
Low Dependability Companies 21% to 39% Below-Average Dependability 2
S&P 500/Industry Average 40% to 59% Average Dependability 3
Above-Average 60% to 79% Dependable 4
Very Good 80% or higher Very Dependable 5
MMM 100% Very Dependable 5

MMM Final Score Rating
Safety 63% 4/5 safe
Business Model 80% 3/3 wide moat
Dependability 100% 5/5 very dependable
Total 91% 12/13 speculative blue-chip dividend king
Risk Rating

4/5 low Risk

2.5% OR LESS Max Risk Cap Rec – speculative

15% Margin of Safety For A Potentially Good Buy

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FAST Graphs, FactSet

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FactSet Research Terminal

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FactSet Research Terminal

Investment Strategy Yield LT Consensus Growth LT Consensus Total Return Potential Long-Term Risk-Adjusted Expected Return
3M 5.7% 7.0% 12.7% 8.9%
ZEUS Income Growth (My family hedge fund) 4.1% 10.4% 14.5% 10.2%
REITs 3.9% 6.1% 10.0% 7.0%
Schwab US Dividend Equity ETF 3.6% 9.4% 13.0% 9.1%
Vanguard Dividend Appreciation ETF 2.2% 10.0% 12.2% 8.5%
60/40 Retirement Portfolio 2.1% 5.1% 7.2% 5.0%
Dividend Aristocrats 1.9% 8.5% 10.4% 7.3%
S&P 500 1.7% 8.5% 10.2% 7.1%
Nasdaq 0.8% 10.9% 11.7% 8.2%

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Portfolio Visualizer Premium

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FAST Graphs, FactSet

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FAST Graphs, FactSet

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FAST Graphs, FactSet

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FAST Graphs, FactSet


Disclosure: I/we have a beneficial long position in the shares of BTI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Dividend Kings owns BTI in our portfolios.


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