Three Of My Favorite Dividend Stocks For 2017

This guest post has been written by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog.

In the beginning of this New Year, many investors review their portfolios. We all hope for a good year on the market and, most importantly, steady dividend growth increases among our portfolio. I selected three companies I think will perform well in 2017 and will increase their dividend payouts.

elwynn/Shutterstock.com

3M Co (NYSE:MMM)

Business Model:

3M Co (NYSE:MMM) produces products like Scotch tape, projector systems, Post-it notes, Tartan track, and Thinsulate. This is a conglomerate that produces products for many industries and for both personal and business use, and their manufacturing, research, and sales offices are all over the world.

Main Strengths:

3M shows all the right characteristics to be part of a dividend growth portfolio. It is a leader in many of its products and spends more than any of its competitors in R&D. This makes 3M a chief of innovation that is always a few years ahead of the competition. By improving its existing products and generating new ones, 3M ensures it will grow its revenue over time.

The company also has strong experience in making several “small” acquisitions throughout the years and integrating them perfectly into its strong business model. Finally, 50% of its revenue is coming from repetitive sales, generating a never-ending source of cash flow.

Potential Risks:

There isn’t much risk associated with 3M besides the fact that its growth in the upcoming years may not be spectacular. This is not a company to buy in the hopes of it showing double-digit returns, but this is a company you can buy and sleep well at night.

Dividend Growth Perspective:

3M Co (NYSE:MMM) has been paying dividends to its shareholders for over a century and shows more than 50 consecutive years of increases. Over the past couple of years, 3M has been even more generous with its dividend increases and the payout ratio has jumped to 54%. Still, there is plenty of room for management to increase it in the future.

Investment Thesis:

3M’s competitive advantages are legendary. Industrial clients are reluctant to abandon such a world class company for any competitors, as they know 3M will deliver quality products. Consumers continue to buy post-its again and again, as the product is well designed, well known and, most importantly, works perfectly. 3M shows one of the strongest business models among the dividend kings and its dividend growth potential will continue to be one of its most interesting characteristics for investors.

BlackRock, Inc. (NYSE:BLK)

Business Model:

BlackRock, Inc. (NYSE:BLK) is THE asset manager in the U.S, with the largest market share (Assets Under Management) with its iShares division. With over $1 trillion invested in its ETFs, Blackrock shows more than double the AUM of the second place State Street Corp. Considering investors’ growing appetite for ETFs; this is definitely an interesting economic moat to develop.

Main Strengths:

BlackRock has built a solid reputation throughout the years and the recent shift in the financial industry requesting more affordable investing vehicles for the masses is opening the door wide open to the world’s largest ETF creator. Blackrock has also built a strong mix of fixed income and equity products, enabling them to simply offer a different product to their clients instead of seeing them sell their position and staying in cash.

Potential Risks:

The thing with financial companies is that they could always evolve around complex products that could lead to bad surprises. Hopefully, new regulations for more transparency will avoid such situations with BlackRock. In the event of any market mood swings, Blackrock’s stock price is likely to fluctuate. However, those risks are nothing to worry about if you are in for the long-term.

Dividend Growth Perspective:

BlackRock, Inc. (NYSE:BLK) has been a steady dividend payer for some years now. The company has successfully increased its dividend payouts for the past 6 consecutive years while maintaining a payout ratio under 50%. The company is generating sufficient cash flow to continues its streak for several years to come.

Investment Thesis:

BlackRock, Inc. (NYSE:BLK) is a leader in its industry and has built a solid relationship with its clients. They offer a wide variety of investing products going from fixed income to equity. BlackRock shows a great combination of stable business model (due to the size of its assets under management) and growth potential (as more institutions are looking for low fees investment solutions). As we are bullish for 2017, we see Blackrock getting more net inflows of cash to its investment offerings.

Cisco Systems, Inc. (NASDAQ:CSCO)

Business Model:

Cisco Systems, Inc. (NASDAQ:CSCO) is the reference for switches and routers across the world. The way we transfer data throughout networks has been a pillar for many industries over the past decade. While 2/3 of Cisco’s revenue comes from switches and routers, the rest of Cisco’s sales are coming from faster-growing adjacent market segments such as wireless, security, collaboration, unified communications, and data center products.

Main Strengths:

As Cisco is the undisputed leader in its industry, this is also the player which sets the standard for others. This enables Cisco to benefit from a stronger premium on all its products and services. As many companies are dependent on their networking system to operate on a daily basis, their costs to ditch Cisco are enormous. Cisco has built and protected a very strong niche here.

Potential Risks:

Unfortunately, or fortunately, technology keeps evolving. What Cisco Systems, Inc. (NASDAQ:CSCO) is today (the leader of switches and routers) could eventually disappear, as the need for routers may decline upon the arrival of new technology. However, since Cisco keeps acquiring smaller tech companies in order to stay on top of things, I’m not too concerned about this potential fate right now.

Dividend Growth Perspective:

The dividend payment has been increasing on a steady basis for the past 5 years while the payout ratio remained well under control around 50%. Cisco’s core business is very strong and generates a steady income to be distributed to shareholders. Dividend increases in the forthcoming years are well secured.

Investment Thesis:

The acceleration of the “IOTH” (Internet of Things), where literally everything is meat to communicate through a network is positioning Cisco in the driver’s seat for several years to come. As it is already established as a strong leader in this industry, there is more room for growth in the future.

Cisco Systems, Inc. (NASDAQ:CSCO) has the size and cash to secure their clients and answer their future needs. It can then continue to benefit from the strong bond it has established with its clients and offer further products to expand its revenue.

How I Selected Those 3 Companies

Before I select any companies to be part of my portfolio, I go through an exhaustive investment process. Each company must meet the 7 dividend investing principles. Those principles have been established based on several academic studies and over a decade of my financial experience in the stock market. I not only think those stocks will do well in 2017, but I believe they will do well in the long run too. In my opinion, those are keepers for a dividend growth portfolio.

Disclaimer: I hold MMM, BLK and CSCO in my Dividend Stocks Rock portfolios.