The stock market is an unpredictable master. Over decades, Wall Street can transform you into a millionaire, but can lose you money in any given year. That’s why it’s best to be patient and buy the best dividend paying stocks over time.
Dividend stocks have a proven track record of success. There is not been a single decade in the past 100 years where dividend stocks on the S&P 500 lost money. Even when the index itself was negative, stocks that paid dividends generated positive returns.
Yet it’s also true market downturns are excellent buying opportunities. Corrections, bear markets, and outright crashes are when you should go shopping for stocks. As Warren Buffett said, “be greedy when others are fearful.”
That’s why buying dividend stocks on dips should be part of your investing routine. The following three companies are among the best income stocks you can buy today. That they are also knocked down names only makes them better.
3M (MMM)
Industrial conglomerate 3M (NYSE:MMM) is currently out of favor with the market. It faces headwinds due to fears of significant legal liabilities. Best known for its Post-It Notes and Scotch brand tape, we discovered during the pandemic it was also a major manufacturer of N95 masks and respirators.
However, 3M was exposed to several environmental and personal product liability lawsuits. It just agreed to settle for $10.3 billion, a claim it had contaminated drinking water with so-called “forever chemicals.” They were used in everything, from foam used by firefighters to non-stick sprays.
3M also set aside as much as $1 billion for faulty military ear plugs manufactured by its Aearo subsidiary that has since gone bankrupt. Some analysts think the liability could be as high as $10 billion to $20 billion.
Its consumer-facing markets are also under pressure and the company has missed earnings estimates several times. But it did just beat the consensus outlook for the second quarter and raised its bottom-line full-year guidance.
3M now expects adjusted earnings of $8.60 to $9.10 per share, up from its prior range of $8.50 to $9.00 per share. That indicates, despite the headwinds, 3M remains a highly profitable company. It has a restructuring plan in place that’s gaining traction and cost-cutting measures are having a positive impact. 3M is also planning to spin off its healthcare unit at the end of the year to unlock shareholder value.
The stock has an attractive valuation at just 11 times earnings and estimates. Its dividend remains secure and yields 5.5% annually. 3M has a 66-year track record of raising the payout making it a Dividend King.
Hormel (HRL)
Packaged meat products maker Hormel (NYSE:HRL) is another dividend stock to buy on the dip. Shares are down 11% in 2023 as inflation pressures profit margins. The owner of brands such as Spam and Skippy has been unable to pass higher prices onto consumers so easily.
The avian flu outbreak that struck the turkey industry hurt Hormel. Demand for the protein exceeds supply available, though it expects volumes to increase as the year progresses. It also anticipates the China market to recover later this year giving it two strong levers of growth to pull.
The company is also willing to make acquisitions to fuel growth. It acquired the Planters snacks portfolio from Kraft Heinz (NASDAQ:KHC) in 2021. After investing in what was a declining brand, Hormel saw 8% growth in the second quarter. It will also sell off businesses that don’t align with its core operation. In 2019, Hormel sold the maker of Muscle Milk to PepsiCo (NASDAQ:PEP).
It is an indication of why Hormel has not only survived but thrived. Since going public in 1928, the packaged meat maker has paid a dividend. In fact, it has made 380 consecutive quarterly dividend payments. It’s also raised the payout for 57 straight years. That’s a record any top dividend stock would want to have.
Leggett & Platt (LEG)
Making mattress innerspring coils isn’t exactly a sexy business. Yet for over a century Leggett & Platt (NYSE:LEG) has been the industry leader.
Founded in 1889, the company makes innerspring coils for mattresses and sofas, along with products for the auto and aerospace industries, furniture manufacturers, and flooring and textile businesses. It supplies them with mechanical and lumbar support for seats; steel mechanisms and motion hardware for chairs; and synthetic fabrics for ground stabilization, drainage protection, erosion, and weed control.
That also explains why Leggett & Platt’s stock is down 23% over the past year. The housing market started to fall and the auto industry has been in a rut. New mattresses and new homes go hand in hand. Bedding products account for 46% of total annual revenue. Flooring is almost a billion-dollar business for it and accounts for almost 20% of sales. So two-thirds of Leggett & Platt’s revenue is tied almost exclusively to the housing market. And new car sales require having something to sit on.
Yet the company has been through these ups and downs before. Housing markets always ebb and flow. Cars sales have boom and bust periods. Leggett & Platt is conservatively run and has come through each calamity in fine shape.
Management has paid a dividend every year since 1939 and raised the payout for 51 years. It says maintaining its position on the list of Dividend Aristocrats, or those companies on the S&P 500 that have increased their payouts for 25 years or more, is an important strategic consideration. The dividend currently yields 6.2% annually. That’s one of the highest yields of any Dividend Kings.
You will be able to sleep soundly owning this high yield dividend stock.
On the date of publication, Rich Duprey held a LONG position in MMM and LEG stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.