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Why I Just Swapped These 2 Well-Known Dividend Stocks
I enjoy investing in dividend stocks. I like to see the income flow into my portfolio. It gives me more money to reinvest into income-generating investments. That grows my passive income stream toward my ultimate goal of eventually reaching the level where it can offset my regular expenses.
I’ve hit a few speed bumps in achieving that goal over the years because companies I owned cut their dividends. One of those disappointing investments is 3M (NYSE: MMM). The industrial giant ended a streak of more than 60 straight years of dividend growth when it slashed its payment earlier this year. That cut led me to sell my stake. I used some of that cash to start a new position, adding Whirlpool (NYSE: WHR) to my income portfolio. Here’s why I made that switch.
Abdicating its throne
3M had been one of the most reliable dividend stocks around. Its more than a half-century history of dividend increases had it in the elite group of Dividend Kings. However, a series of issues forced the industrial giant to make some difficult decisions, including cutting its dividend.
A couple of the company’s products caused some very expensive legal issues. Ultimately, it agreed to pay about $18.5 billion to settle those claims. That’s a lot of money, even for a company as financially strong as 3M. As a result, the company has taken several steps to preserve its financial flexibility so that it can cover those payments and its other capital needs.
One of its moves was spinning off its healthcare unit to create Solventum. 3M loaded that entity with debt, which gave it more financial flexibility. However, the downside of the spinoff was that it removed a big chunk of 3M’s cash flow. As a result, the company reset its dividend following the spin, cutting it by about 50%.
3M’s dividend was a big reason why I initially invested in the company years ago. I was seeking a high-quality and steadily rising payout. While 3M delivered that steady growth for many years, its legal issues proved to be too much to maintain the payout any longer. With its dividend now a shell of its former self, I decided it was time to sell 3M. I also sold my shares in Solventum since that company has no plans to start paying a dividend anytime soon because it needs to pay down some of the debt 3M saddled it with before the spin.
This dividend stock hits close to home
I used some of the proceeds from my 3M/Solventum sale to buy shares of Whirlpool. The iconic appliance maker is a company that has been on my radar for a while, not just because it pays dividends. My wife and I recently bought a new home, and with that came the need to purchase some new appliances. Whirlpool makes many of the appliances that we’re looking to buy.
In researching appliances, I also started looking closer at the stock. I first noticed that it pays a pretty enticing dividend (it currently yields nearly 7%). The company has paid dividends for about 70 years. While it hasn’t increased its payment every year (it last raised its dividend in 2022), it has never cut its payout:
Now, as I learned from 3M (and others), a strong dividend history is no guarantee that the company will be able to achieve similar success in the future. However, Whirlpool is in a good position to maintain its dividend despite some current headwinds. Its dividend will cost it about $400 million this year, which it can easily cover with free cash flow (estimated to be about $500 million after capital expenses and other items). Whirlpool is looking to boost its free cash flow by selling off some of its international businesses, which, along with other initiatives, should reduce its global cost structure by $300 million-$400 million. It’s also working to reduce debt, which should cut interest expenses.
Meanwhile, the company expects the housing market to eventually recover as interest rates fall. That should drive higher sales as home sellers replace their appliances to appeal to more buyers or new homeowners buy new ones after moving in. I can vouch for this; my wife and I disliked the refrigerator at our new home (not a Whirlpool) so much that we’re buying a new one. That replacement cycle should boost Whirlpool’s sales and bottom line, putting its dividend on an even firmer foundation.
Spinning out lots of income
3M’s dividend cut was a huge disappointment, given its long history of steady growth. That’s why I recently sold my shares to make way for Whirlpool. The company pays a much higher-yielding dividend that it should be able to sustain through the current downcycle in the housing market. While it’s still facing some headwinds that will prevent it from increasing its payout in the near term, I think it will be a solid income stock over the long haul as it spins out cash into my account.
Should you invest $1,000 in 3M right now?
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Matt DiLallo has positions in Whirlpool. The Motley Fool recommends 3M, Solventum, and Whirlpool. The Motley Fool has a disclosure policy.
Why I Just Swapped These 2 Well-Known Dividend Stocks was originally published by The Motley Fool
The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.
Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.
Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.
Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.
While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.
The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.
Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.
While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:
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Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.
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Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.
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Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.
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Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.
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Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.
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Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.
The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.
There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.
No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.
Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.
Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.
Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”
Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.
Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”
Lumen will report third quarter 2024 results on November 5, 2024.
Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).
Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.
Image via Shutterstock
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This article Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions originally appeared on Benzinga.com
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CoinShares said the United States and Bitcoin led crypto investment product dynamics last week amid growing optimism over a potential Republican election win in the US.
Bitcoin’s private keys won’t be breached any time soon, but the industry still needs to transition to “post-quantum cryptography.”
Despite record European inflows, Bitcoin has been unable to recover above the $70,000 psychological level since July.
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