Dividend Investors: Cash Is King


News dropped Wednesday that U.S. gross domestic product fell 4.8% in the first quarter. The Commerce Department’s data painted a pretty grim picture; it shows drops in business activity pretty much across the board.

Even though the news wasn’t great, some stocks have been climbing.

For instance, IBM (NYSE: IBM) was up.

Why? Cash is king.

There’s no doubt that the coronavirus has crippled the global economy. As a result, dozens of companies have withdrawn their 2020 guidance and cut or even suspended dividends.

IBM, on the other hand, increased its dividend. It only bumped it by a penny, to $1.63 per share, but that penny increase is better than a lot of the alternatives. And IBM was able to do that because it has more than $11.2 billion in cash on its balance sheet.

Even though the global economy is weakened, IBM has now managed to increase its dividend for the 25th year running. If it hadn’t been sitting on that cash, there’s no way it could have done that.

Why do I say that? The first quarter wasn’t kind to IBM’s business. The company, like so many others, withdrew its 2020 guidance. Still, it’s got the cash to fund its dividend.

3M (NYSE: MMM) has also increased its dividend, though that’s less of a shock.

While 3M might be best known for Post-Its, it’s the very definition of a diversified industrial, making a wide array of filters, paper products – you name it.

Its biggest claim to fame right now?

Making the N95 masks everyone wants and healthcare workers need . . . but which are harder to find then hen’s teeth.

3M, which reported its fiscal third-quarter earnings on April 28, said its adjusted earnings per share rose 2.7% to $2.16 while revenue hit $8.08 billion. Both numbers topped Wall Street estimates, sending shares higher.

The thing is, most of that bump was thanks to growth in its health-care segment – the segment in which N95 sales are reported.

Still, 3M withdrew its 2020 guidance because N95 sales can’t carry the company for long.

Despite that, the scuttlebutt is that 3M will raise its dividend. The company sells staple products so, even if the economy tanks, we’re still going to buy its products. As a result, it’s generous with its dividend and yields 3.3% right now precisely because it doesn’t have to sit on a lot of cash. And with nearly $2.5 billion worth of cash and nearly $13 billion worth of current assets, it can afford to boost its payout.

So, if you’re an income investor, don’t despair. There are going to be plenty of companies that maintain – or even increase – their dividends.

You just have to be on the lookout for companies with lots of cash and sustainable business models.

If you’re after sustainable income and looking to broaden your horizons, it might be time to add another strategy to your investment routine.

With our Overnight Trader, you can turn $5,000 into $1.1 million, using low-risk, short-term trades. Heck, that would be a great way to put your stimulus check to work.

Here’s to Staying Profitable AND Healthy,

Ben Shepherd

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