These Dividend Aristocrats Are Slashing Payouts, Ending Decades Of

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Dividend Aristocrats, a group of S&P 500 companies that have consistently increased their annual dividend payouts 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-standing Dividend Aristocrats, 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 well-known maker 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 spinoff of its healthcare business, Solventum (SOLV), on April 1, 3M announced that it would reset its dividend payout ratio to approximately 40% of adjusted free cash flow, resulting in a dividend cut.

While the exact amount of the dividend reduction will be announced next month, analysts speculate that the annual dividend could be reduced to around $2.85 per share, a 52.8% decrease from the current annual rate of $6.04 per share. This move puts 3M at risk of losing its coveted Dividend Aristocrat status.

Despite the disappointing dividend news, 3M reported better-than-expected first-quarter earnings and revenue. The company’s stock gained nearly 5% on Tuesday and an additional 3% on Wednesday following the release of its quarterly results.

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

Leggett & Platt, a diversified manufacturer of engineered components and products, has increased its dividend rate for 52 years. However, the company recently announced a significant dividend cut, lowering its quarterly payout to $0.05 per share from the previous year’s level. This strategic decision 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 short term.

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. The company plans to invest in business expansion and acquisitions for 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 by 3M and Leggett & Platt serve as a reminder that even the most reliable dividend-paying companies can face challenges that force them to reevaluate their payout strategies. While these companies have been consistent dividend payers for decades, it’s essential for investors to diversify their income streams to minimize the impact of potential dividend cuts.

Alternative income investments, such as real estate, can provide investors with attractive yields and the potential for capital appreciation. Two options worth considering are Arrived and the Cityfunds Yield fund.

Arrived is a platform that allows individuals to invest in shares of rental properties for as little as $100. By providing access to rental income and potential appreciation of carefully vetted properties, Arrived offers investors a passive income stream without the hassles of being a landlord.

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The Cityfunds Yield fund targets an 8% annual percentage yield (APY), with a manager guaranteed floor of 7%, by investing in a diversified pool of collateralized real estate loans. With quarterly distributions, this fund presents an attractive opportunity for income-focused investors seeking exposure to the real estate debt market.

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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 like Arrived and the Cityfunds Yield fund, investors can potentially mitigate the impact of dividend cuts and build a more resilient income stream.

The recent dividend cuts by 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’s crucial to diversify income sources and consider alternative investments to navigate the ever-changing landscape of dividend investing.