So far this year, Boeing (NYSE:BA) is the second worst performing stock in the US Dow Jones Industrial Average (rear only Intel). But the fact that a stock falls in value does not automatically mean that it is a good value.
This is why 3M (NYSE: MMM), McDonald’s (NYSE:MCD)And Chevron (NYSE: CVX) are three better Dow dividend stocks to 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 are serious questions about the feasibility of its plan to reach $10 billion in free cash flow by 2025/2026.
On the other hand, 3M’s management is slowly restoring confidence in investors and reducing risks to the company. In addition, the new CEO, William Brown, will have the opportunity to outline his vision for the company. As such, medium-term expectations for Boeing could be lowered, while the outlook for 3M could become brighter.
In 2024, 3M spun off its healthcare business, Solventand raised money in the process. Agreements have been made to resolve legal issues and clarify the value of payouts. In addition, the dividend cut will free up cash resources to restructure the company.
Meanwhile, the ongoing restructuring program appears to be improving margin performance, and there are signs of improvement in some of the key end markets, such as semiconductors and electronics.
The stage is set for Brown to create a plan to generate value for investors by implementing his strategic vision for the company. While 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 dividend yield of 2.8%, 3M could see a double-digit return for can yield for investors.
Restore value
Daniel Foelber (McDonald’s): After briefly surpassing $300 per share earlier this year, McDonald’s shares are down a surprising amount for a robust, blue chip dividend stock. Through 2024, the stock is now down more than 12%, making it one of the five worst-performing components of the Dow Jones Industrial Average.
McDonald’s is a somewhat challenging company to analyze as the vast majority of its stores are franchised and not company-owned. The franchise-heavy model means McDonald’s relies on its brand and trust that potential franchisees can make money, and therefore must take the risk of opening a new McDonald’s location. It is an effective business model because it relies on a steady inflow from licensing, royalties, leases and the performance of the company-owned stores. But it all falls apart when franchisees don’t generate acceptable returns.
McDonald’s is not yet at that difficult stage. But years of price hikes have exhausted customers and damaged the McDonald’s brand, which depends on value. A comparison would be like Walmart prices have increased excessively, putting pressure on consumers and losing the brand’s most important feature: saving customers money.
To increase perceived value, McDonald’s is leaning heavily on its mobile app through promotions and offers – a way to increase engagement while differentiating itself from the competition. It’s also releasing a $5 meal on June 25 and the promotion will last for about a month.
McDonalds just opened its 6,000th restaurant in China and plans to have 50,000 restaurants by 2027. There are currently more than 40,000 restaurants. For these stores to be successful, the company must restore its image as the highest-value fast-food restaurant.
Despite the challenges, McDonald’s is too good a company with too cheap 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 years in a row, 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 an excellent opportunity to buy this top Dow Jones dividend stock on the cheap and collect a significant amount of passive income while they wait for the company to recover.
Boost your passive income stream with Chevron’s high-yield dividend
Scott Levine (Chevron)While value investors may have considered adding Boeing stock to their portfolios — down nearly 30% year-to-date — the turbulence the company has recently endured related to safety concerns has weighed on the stock’s eyes made undesirable by many investors. But Chevron is another market leader in the Dow Jones index that value investors can get behind. The attractive forward dividend yield of 4.2% and the track record of increasing the dividend for 37 consecutive years make it even more attractive.
The prospect of generating strong passive income from high-yield stocks is attractive, but smart investors know it’s important to verify that the high payouts are sustainable. An encouraging sign is the company’s robust asset portfolio in the Permian. From 2023 through 2027, Chevron expects to have 2,200 well locations in the Permian, and the company plans to expand this presence to more than 6,600 well locations in 2028 through 2040. This focused outlook on the company’s long-term growth is a good omen for income investors. who seek certainty that the dividend can be maintained.
Another encouraging sign is management’s favorable outlook for free cash flow growth in the near term. Of $10 billion in free cash flow (excluding working capital) in 2022, Chevron expects annual free cash flow to grow more than 10% on average through 2027.
With Chevron’s stock currently valued at about 7.7 times operating cash flow — a discount to their five-year average cash flow multiple of 8.3 — today seems like a particularly good time to add this dividend powerhouse to your portfolio.
Should you invest €1,000 in 3M now?
Before you buy shares in 3M, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and 3M wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $808,105!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 10, 2024
Daniel Foelber has the following options: In December 2026, $30 rings $30 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 has positions in and recommends Chevron and Walmart. The Motley Fool recommends 3M and Intel and recommends the following options: long January 2025 $45 calls to Intel and short August 2024 $35 calls to Intel. The Motley Fool has a disclosure policy.
Instead of Buying the Dip on Boeing, Consider These 3 Dow Dividend Stocks Originally published by The Motley Fool
