Home Market News Exploring Profitable Paths: Evaluating Verizon vs. 3M for Dividend Investors

Exploring Profitable Paths: Evaluating Verizon vs. 3M for Dividend Investors

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Exploring Profitable Paths: Evaluating Verizon vs. 3M for Dividend Investors

Delving into the world of high-yield dividend stocks reveals two titans that have captivated the attention of income-focused investors in recent times: 3M Company (NYSE: MMM) and Verizon Communications (NYSE: VZ). Both sporting yields surpassing 6.5%, enjoying strong brand recognition, and proudly listed on the venerable Dow Jones Industrial Average.

So, which of these high-yield Dow darlings presents a more tempting proposition currently? Let’s dissect their value propositions to unravel the mystery.

A row of rolled-up $100 bills planted in a garden.

Image source: Getty Images.

3M: A Mixed Bag of Prosperity and Peril

3M Company, lauded for its prowess in material science, carries a prestigious legacy of uninterrupted dividend distribution spanning over a century. With an impressive streak of elevating payouts for 64 consecutive years, 3M’s stock currently trades at a modest 9.7 times forward earnings—a notable discount compared to the sector’s average multiple of 29.

However, there’s a cloud of uncertainty shrouding the sheen of 3M’s dividends. The company’s payout ratio for the past year perches at a relatively high 61.6%, nudging the edge when compared to peers. Despite its vast product portfolio and a history of innovation in material science, 3M’s shares have weathered significant turbulence lately. Legal entanglements linked to public water systems and faulty Combat Arms earplugs have been responsible for a harsh 48.9% dip in its share value over the past three years.

MMM Chart

MMM data by YCharts.

Furthermore, the impending spinoff of its healthcare division into the independent entity Solventum adds a pinch of spice to the 3M narrative. While this decision carries its merits, it does introduce a veil of ambiguity for investors. Evidencing this, 3M’s shares have taken a sobering 26% tumble post the spinoff announcement in July 2022.

Overall, while 3M’s stock shines with attractive pricing, a robust dividend yield, and a track record of payout growth, the lingering legal shadows and upcoming spinoff delineate a challenging path ahead. Recovery for 3M might beckon, but it could require a patient marathon rather than a swift sprint.

Verizon: Diving into the Telecom Waters

Enter Verizon Communications, a heavyweight in the U.S. telecom sector. With strategic investments in 5G and fiber infrastructure under its belt, Verizon pledges top-notch service quality and extensive coverage for its customers.

Currently trading at an enticing 8.6 times projected earnings, Verizon emerges as a compelling value proposition within the Dow Jones lineup. Offering a sturdy dividend yield of 6.7%, Verizon raises eyebrows, albeit with concerns around its hefty payout ratio of 96%.

While the dividend growth rate of 2% over the last five years might not set the world ablaze, it certainly outpaces 3M’s growth trajectory. With shares boasting a respectable 5.3% uptick in the last year:

VZ Chart

VZ data by YCharts.

Verizon’s revenue growth outpaces industry standards, thanks to its unwavering commitment to service excellence. Analysts foresee Verizon accelerating its revenue growth in the near future, eclipsing the industry’s tepid growth projections.

While not the hare in the race for growth, Verizon’s stable financial outlook, established position in a vital industry, and generous dividend capture attention, painting a picture of relative stability.

The Final Word

In this showdown of high-yield dividend giants, the trophy goes to Verizon. The telecom juggernaut presents a more assured value proposition and dividend landscape for investors seeking income.

3M, though potentially enticing for contrarian long-haul investors, lacks the same assurance and safety net that Verizon’s offering embodies. This delineation in safety nets is further accentuated by Verizon’s stock trajectory: a steady climb for Verizon against 3M’s downward trend over the past year.

So, in the perennial duel between Verizon and 3M, the scales tip in favor of Verizon, offering a smoother ride for dividend-seeking investors eyeing stability amidst market maelstroms.

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George Budwell holds no positions in the mentioned stocks. The Motley Fool suggests 3M and Verizon Communications. The Motley Fool adheres to a disclosure policy.

The thoughts and viewpoints expressed are the author’s own and may not necessarily mirror those of Nasdaq, Inc.