3M Company (NYSE:MMM) has long been regarded as a dividend king, boasting an impressive 101-year history and an enviable streak of 64 consecutive years of dividend growth. However, recent developments have raised concerns about the sustainability of 3M’s dividend, prompting investors to consider alternatives that offer safer returns. This article delves into the challenges facing 3M and presents two Ultra SWANs (Sleep Well At Night) options with secure 8% yields that investors can trust.
Risk of a Dividend Cut Looms Over 3M
Last time we discussed 3M, we highlighted the changing landscape and increasing risk of a significant dividend cut. Since then, the company’s stock has dropped by almost 20%, and new earnings reports, management guidance, and bond market assessments have further complicated the outlook for 3M. The stock’s recent volatility, including a 5% single-day earnings surge that quickly faded, has not instilled confidence in investors.
While some may see 3M’s current valuation, with a forward price-to-earnings ratio of 9, as an enticing Warren Buffett-style opportunity, a closer look at the earnings numbers raises concerns. The company’s 7% yield may appear attractive at first glance, but a deeper analysis reveals troubling trends and potential legal liabilities that could impact the dividend growth rate in the long term.
Consider the Ultra SWANs as Alternatives
In light of these challenges, it is wise to explore alternative investment options that offer higher yields and greater dividend sustainability. The following two Ultra SWANs are well-positioned to weather economic downturns and provide consistent returns:
1. The Bank of Nova Scotia (BNS)
BNS, also known as Scotiabank, is a highly reliable dividend legend that investors can trust. Boasting a 28-year dividend growth streak, BNS has not missed or cut its dividend even during the Great Depression or the recent COVID-19 pandemic. With an impressive 8.3% yield and a credit rating that ranks it among the safest non-government-owned banks, BNS presents a compelling investment opportunity.
2. Enbridge Inc. (ENB)
Enbridge is another Ultra SWAN that warrants serious consideration. As one of the oldest midstream companies in the world, ENB enjoys a remarkable 28-year dividend growth streak and is recognized for its safety and quality. With a generous 8.3% yield and a strong credit rating, ENB is well-positioned to deliver long-term value to investors. The company’s focus on renewable energy projects further enhances its appeal and ensures future growth potential.
Safe and Strong Investment Options
Both BNS and ENB offer attributes that make them stand out as sound investment choices. Their commendable yields, praiseworthy dividend safety records, and strong credit ratings make them attractive alternatives to 3M. While there is a remote chance of a dividend cut in extreme economic conditions, the risk associated with BNS and ENB is considerably lower compared to 3M.
Investment Summary and Potential Returns
Choosing BNS or ENB offers investors the opportunity for impressive returns with significantly reduced risk. BNS, with its 7.8% yield and projected long-term growth of 6.5%, could potentially deliver a total return of 18.9%. ENB, on the other hand, boasts an 8.3% yield and an expected growth rate of 5%, resulting in a total return potential of 16.9%. Both options outperform the S&P 500 and provide enticing long-term investment prospects.
Given the uncertainties surrounding 3M and the availability of better alternatives, it is prudent for investors to shift their focus to companies that offer superior yields, sustainability, and growth potential. BNS and ENB emerge as standout candidates that can meet these criteria and provide investors with a sense of security and confidence.
Disclaimer: The content provided in this article is for informational purposes only and should not be considered as financial advice. Readers are encouraged to conduct their own research and consult with a financial advisor before making any investment decisions.
