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Dividend Aristocrats, a group of S&P 500 companies that have consistently increased their annual dividend payments for at least 25 consecutive years, are often considered a haven for income-seeking investors. These companies are known for their reliable and consistent dividend payments, making them attractive to investors looking for stable income streams. However, two long-time dividend aristocrats, 3M Co. (NYSE:MMM) And Leggett & Platt, Incorporated (NYSE:LEG), end their impressive streak of consecutive dividend increases.
3M Co.: 64-year streak comes to an end
3M, a well-known manufacturer of Post-it notes and a wide range of industrial and consumer products, has paid a dividend for the past 100 years and has increased that dividend for 64 consecutive years. However, following the spin-off of its Solventum (SOLV) healthcare business on April 1, 3M announced that it would readjust its dividend payout ratio to approximately 40% of adjusted free cash flow, which would result in a reduction in the dividend.
Although the exact amount of the dividend cut will be announced next month, analysts estimate that the annual dividend could be reduced to around $2.85 per share, a decline of 52.8% from the current annual rate of $6.04 per share. The move puts 3M at risk of losing its coveted Dividend Aristocrat status.
Despite disappointing dividend news, 3M reported better-than-expected first-quarter earnings and revenue. The company’s stock gained nearly 5% on Tuesday and another 3% on Wednesday following the release of its quarterly results.
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Leggett & Platt, Incorporated: 52 Years of Raising Come to an End
Leggett & Platt, a diversified manufacturer of engineering components and products, has been increasing its dividend rate for 52 years. However, the company recently announced a significant reduction in its dividend, bringing its quarterly payout down to $0.05 per share from the prior year’s level. The strategic move comes as the company faces continued weak demand in residential markets and aims to strengthen its balance sheet by reducing debt and improving its financial position in the near term.
During its first quarter 2024 earnings conference call, Leggett & Platt reported a 10% decline in net revenue and a 41% decline in earnings per share compared to the same quarter last year . The company plans to invest in business expansion and acquisitions to ensure future growth while continuing to reward shareholders through a combination of dividends and share repurchases.
Is it time to consider alternative income investments?
The recent dividend cuts from 3M and Leggett & Platt are a reminder that even the most reliable dividend-paying companies can face challenges that force them to re-evaluate their payout strategies. Even though these companies have been paying dividends consistently for decades, it is essential for investors to diversify their income sources to minimize the impact of potential dividend cuts.
Alternative income investments, such as real estate, can offer investors attractive returns and the potential for capital appreciation. Two options to consider are Arrived and the Cityfunds Yield fund.
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The Cityfunds Yield fund aims for an annual percentage yield (APY) of 8%, with a manager-guaranteed floor of 7%, by investing in a diversified pool of secured real estate loans. With quarterly distributions, this fund presents an attractive opportunity for income-oriented investors seeking exposure to the real estate debt market.
While alternative investments may not be suitable for every investor, they can play a valuable role in a well-diversified income portfolio. By considering options such as Arrived and the Cityfunds Yield fund, investors can potentially mitigate the impact of dividend cuts and create a more resilient income stream.
The recent dividend cuts from 3M and Leggett & Platt serve as a wake-up call for income investors who rely heavily on Dividend Aristocrats. While these companies have a long history of consistent dividend growth, it is crucial to diversify income sources and consider alternative investments to adapt to the ever-changing landscape of dividend investing.
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This item These Dividend Aristocrats Are Slashing Payouts, Ending Decades of Consecutive Dividend Increases originally appeared on Benzinga.com
