How Dividends Change the Game for This Dow Stock

The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small differences in the short term add up to massive divergence over decades. In the end, the biggest winners don't always deliver the fattest share-price returns.

Let's have a look at materials technology giant 3M . The maker of everything from Post-It notes to industrial air-filters has been a good investment over the last two decades, just about doubling the returns of its peers on the Dow Jones Industrial Average index:

MMM Chart
MMM Chart

MMM data by YCharts.

But here's the fun part of the 3M story: The company has relentlessly increased its dividend payouts in the long run. The 2.5% yield you see today is the product of ballooning quarterly checks -- more than enough to keep pace with the stock's rising share prices.

MMM Dividend Chart
MMM Dividend Chart

MMM Dividend data by YCharts.

Those blue stair-steps are a fantastic sign to income investors. Even when 3M's stock plunged during the global financial crisis of 2008, this company simply doubled down on another dividend boost. There's just no stopping this flow of cash into the common investor's pockets.

How big of a difference can these payouts make? I'm glad you asked:

MMM Total Return Price Chart
MMM Total Return Price Chart

MMM Total Return Price data by YCharts.

That's right -- a 133% gain nearly doubles again to a 235% leap. That's 3.5 times the Dow's long-term return. If you include dividends in the Dow's total returns via an index-tracking vehicle such as the SPDR Dow Jones ETF fund, you still only manage to equal 3M's naked share-price gains. The Minnesotan giant rewards its owners more richly than most of its Dow compatriots.

With more than 50,000 products, 3M plays a role in making everything from computers to power cables. A long history of invention and innovation has driven the company to its wide reach, but a focus on operational efficiency may be hurting the creative culture that once created Scotch Tape and the Post-It Note. A new leader has taken over, vowing to return innovation to the forefront. Does this mean the stock will become more than a dividend, returning to its former glory as a growth stock once again?

Find out whether 3M has what it takes to pull it off in The Motley Fool's comprehensive new research report on the company. As an added bonus, you'll receive a full year of key updates and guidance as news develops, so don't miss out -- simply click here now to claim your copy today.

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Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+.Motley Fool newsletter services have recommended buying shares of 3M. Motley Fool newsletter services have recommended creating a diagonal call position in 3M. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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