So far this year, Boeing (NYSE:BA) was the second worst performing stock in the Dow Jones Industrial Average (behind only Intel). But just because a stock is down doesn’t automatically mean it’s good value.
here’s why 3M (NYSE:MMM), McDonalds (NYSE:MCD)And Chevron (NYSE: CVX) are three Dow bests dividend stocks buy now.
3M is on the road to recovery
Lee Samaha (3M): It is interesting to compare Boeing with 3M. Both industrial giants have seen better days, and both entered 2024 with questions about their strategic direction. But here’s the difference: Boeing continues to disappoint investors, and there is serious questions on the viability of its plan to reach $10 billion in free cash flow (FCF) in 2025/2026.
On the other hand, 3M management is slowly restoring investor confidence and reducing the company’s risks. Additionally, new CEO William Brown has the opportunity to present his vision for the company. Thus, Boeing could lower its medium-term expectations, while 3M’s outlook could improve.
In 2024, 3M spun off its healthcare business, Solvent, and raised cash in the process. Agreements have been reached to resolve legal issues and clarify the value of the payments. Additionally, reducing dividends will free up cash resources to restructure the company.
At the same time, the ongoing restructuring program appears to be improving margin performance and signs of improvement are visible in some of its key end markets, such as semiconductors and electronics.
The stage is set for Brown to present a plan to generate value for investors by implementing his strategic vision for the company. Although Brown still has a lot of work to do to fully convince investors that 3M is on the right track, the analysts’ price target of $115 seems reasonable, and with a 2.8% dividend yield, 3M could offer double-digit returns to local investors.
Restore value
Daniel Foelber (McDonald’s): After briefly topping $300 per share earlier this year, McDonald’s stock fell by a surprising amount for a blue-chip dividend stock. It is now down more than 12% in 2024, making it one of the five worst-performing components of the Dow Jones Industrial Average.
McDonald’s is a somewhat difficult company to analyze, since the vast majority of its stores are franchised rather than company-owned. The franchise-based model means that McDonald’s depends on its brand and trust that potential franchisees can make money and therefore should take the risk of opening a new McDonald’s restaurant. This is an efficient business model because it relies on constant flows from licenses, royalties, rental contracts and the performance of its directly owned stores. But everything falls apart if franchisees don’t generate acceptable returns.
McDonald’s is not at this disastrous stage yet. But years of price increases have exhausted customers and hurt McDonald’s brand, which is built on value. A comparison would be if Walmart prices too high, squeezed consumers and lost the most important brand attribute, saving customers money.
To increase perceived value, McDonald’s relies heavily on its mobile app through promotions and offers – a way to increase engagement while standing out from the competition. It’s also offering a $5 meal on June 25 and running the promotion for about a month.
McDonalds just opened its 6,000th restaurant in China and plans to have 50,000 by 2027. It currently has more than 40,000 restaurants. For these stores to succeed, they must restore their image as a top-notch fast food establishment.
Despite the challenges, McDonald’s is too good a company with too low a valuation to ignore. The price-to-earnings ratio is only 21.5 and the dividend yield is 2.6%. McDonald’s has increased its dividend for 47 consecutive years, making it one of the most reliable dividend stocks on the market.
McDonald’s has its challenges and could perform poorly in the short term. But patient investors have a great opportunity to buy this Dow dividend stock at a low price and collect a significant amount of passive income while they wait for the company to turn around.
Boost Your Passive Income Stream with Chevron’s High Yield Dividend
Scott Levine (Chevron): While value investors may have considered including Boeing stock in their portfolios — with it down nearly 30% year to date — the turbulence the company has experienced recently endured due to security concerns have made the stock undesirable in the eyes of many investors. . But Chevron is another Dow sector leader that value investors can rally around. The attractive forward dividend yield of 4.2% and history of increasing the dividend for 37 consecutive years makes it even more attractive.
The prospect of generating solid passive income from high-yielding stocks is enticing, but savvy investors know it’s important to verify that high payouts are sustainable. One encouraging sign is the company’s strong portfolio of assets in the Permian. From 2023 to 2027, Chevron plans to have 2,200 well locations in the Permian, and the company plans to expand that presence to more than 6,600 well locations between 2028 and 2040. This forecast is dedicated to long-term growth of the company bodes well for income investors. who seek assurance that the dividend can be sustained.
Another encouraging sign is management’s promising outlook for near-term free cash flow growth. From free cash flow (excluding working capital) of $10 billion in 2022, Chevron expects annual free cash flow growth of more than 10% through 2027.
With Chevron shares currently valued at approximately 7.7 times operating cash flow – a reduction from their five-year average cash flow multiple of 8.3 – now seems a particularly good time for Add this dividend powerhouse to your portfolio.
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Daniel Foelber offers the following options: Long $30 December 2026 calls on Intel. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Chevron and Walmart. The Motley Fool recommends 3M and Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Mad Motley has a disclosure policy.
Instead of Buying Boeing’s Dip, Consider These 3 Dow Jones Dividend Stocks was originally published by The Motley Fool
