3M and Leggett & Platt Cut Dividends – MASHAHER

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Dividend Aristocrats,  S&P 500 companies prized for their ability to increase annual dividend payouts for at least 25 consecutive years, have long been a safe haven for income-seeking investors. These companies are celebrated for their reliable and consistent dividend payments, making them attractive to those looking for stable income streams. However, two long-standing members of this elite club, 3M Co. (NYSE:MMM) and Leggett & Platt, Incorporated (NYSE:LEG), are ending their impressive streaks of consecutive dividend increases.

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3M Co.: A 64-Year Streak Comes to an End

3M, the iconic maker of Post-It notes and a vast array of industrial and consumer products, has maintained a dividend for the past 100 years, with 64 consecutive years of increases. However, following the spinoff of its healthcare business, Solventum (NYSE:SOLV), on April 1, 3M announced a significant change to its dividend policy. The company reset its dividend payout ratio to approximately 40% of adjusted free cash flow, resulting in a considerable dividend cut. The dividend dropped from $1.51 a quarter to $0.70 a quarter, taking the yield from 6.51% to 2.81%, according to Benzina data.

3M’s first-quarter earnings and revenue surpassed expectations with sales of $8 billion,  down 0.3% year over year, and GAAP earnings per share of $1.67, down 5% year over year. The company has struggled in recent months as it battles lawsuits on multiple fronts. The company will soon begin payouts on its $10.3 billion to water systems contaminated by its PFAS chemicals. Ahead of the coming earnings on July 26, Monish Patolawala, 3M’s President and Chief Financial Officer, announced that he is stepping down at the end of July. Despite these challenges, some analysts see better days ahead for the company, with upgrades coming in recent months from Wolfe Research, B of A Securities, Vertical Research, and HSBC.

Leggett & Platt, Incorporated: 52 Years of Increases Come to a Close

Leggett & Platt, a diversified manufacturer of engineered components and products, including beds, has also ended its impressive streak of 52 years of consecutive dividend increases. The company announced a significant reduction in its quarterly dividend payout, lowering it to $0.05 per share from the previous level of $0.46 per share, taking the dividend yield from 9.04% to 1.09%, according to Benzinga data. This strategic decision was driven by continued weak demand in residential markets and a focus on strengthening the balance sheet through debt reduction and improved financial positioning.

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In its Q1 2024 earnings call, Leggett & Platt reported a 10% decline in net sales and a 41% decrease in earnings per share compared to the same quarter last year.  In May, the company switched up leadership, announcing that Karl Glassman, its Board Chairman, would return as  President and Chief Executive Officer. Glassman was CEO from 2016 to 2021 and has been with the company for 42 years.  In June, Leggett & Platt was removed from the S&P MidCap 400 index and added to the S&P SmallCap 600 index. Analysts have dropped their price targets on this stock, and short interest has risen to 9%, following downward sentiment trends.

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Is It Time To Consider Alternative Income Investments?

The recent dividend cuts by 3M and Leggett & Platt highlight the need for income investors to remain vigilant and diversified. Even the most reliable dividend-paying companies can face challenges that force them to reevaluate their payout strategies. To mitigate the impact of potential dividend cuts, investors should consider diversifying their income streams.

Potential Alternative Dividend Stocks

1. Johnson & Johnson (NYSE:JNJ):

   • Overview: A global leader in healthcare, J&J has a long history of dividend payments and increases.

   • Recent Performance: The stock has shown resilience despite market fluctuations. It has a forward dividend yield of around 3.17% and an annual dividend of $4.96.

   • Outlook: In the most recent earnings statement on July 17th, sales were up 4.3%. The company reaffirmed 2024 reported sales guidance of $88 billion-$88.4 billion. It is seeing promise from cancer cell therapy, Carvykti, which saw sales increase 60% year over year.

2. Procter & Gamble Co. (NYSE:PG):

   • Overview: Known for its diverse range of consumer goods, P&G has consistently increased dividends for over 60 years.

   • Recent Performance: The company has maintained solid financial performance despite an inflationary environment. It has a forward dividend yield of 2.38% and an annual dividend of $4.03.

   • Outlook: P&G’s focus on innovation and global market expansion supports its long-term growth prospects.

3. Coca-Cola Co. (NYSE:KO):

   • Overview: A leading beverage company, Coca-Cola has a strong dividend track record, appealing to income-focused investors.

   • Recent Performance: The stock offers a dividend yield of about 3% and an annual dividend of $1.94, supported by stable earnings.

   • Outlook: Coca-Cola’s extensive distribution network and diversified product portfolio ensure steady revenue streams. Its growth comes from its global reach and expansion into new beverage areas.

Calculating Growth to $1 Million

Assuming an initial investment of $50,000 in a high-yield dividend stock with a consistent annual yield of 3%, and adding $500 monthly contributions, let’s project the growth over 20 years. We will use an annual stock price growth rate of 5%.

Conclusion

The dividend cuts by 3M and Leggett & Platt underscore the importance of a diversified investment approach. By considering a mix of established dividend-paying stocks and keeping an eye on emerging opportunities, investors can navigate the uncertainties of dividend investing while working towards substantial long-term gains.

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This article Dividend Aristocrats Face Payout Challenges: 3M and Leggett & Platt Cut Dividends originally appeared on Benzinga.com