3M Company is a diversified industrial & technology company. 3M manufactures a wide range of industrial that are well-known. Products include Scotch tape and Post-it Notes. Other less known products are within the adhesives, filter, tapes, ceramics, sealants, automotive, paint, roofing, floor mats, and healthcare products. The company earns more than 60 percent of its total revenue from outside the United States. 3M is based in St. Paul, Minnesota and was founded in 1902.
3M has maintained a solid three-year growth rate of dividends of 11.4 percent. 3M currently ranks 4th in dividend yield within the large cap services, conglomerates category. The quarterly dividend for the March payment will be $1.175 versus the prior year rate of $1.11 per share. 3M is not a member of our Top 100 Dividend Stocks. (see below).
The dividend will be paid at the new higher rate on March 12, 2017, to shareholders of record at close of business on February 17, 2017. 3M Company is currently priced at $181.02. Listed in the table below are the quarterly dividend payments since 2010.
Analysis of 3M is based upon our five key criteria for the Top 100 list, which include;
|Dividend Growth (3-7 year avg)||12%||173|
|S&P Financial Rating||AA-||80|
|% Yield||3 Year Div. Growth Rate||7 Year Div. Growth Rate||SPS 2016||P/S Ratio||10 yr P/S Low||10 yr P/S High||5 yr low Yield %||5 yr max Yield %|
- 3M’s dividend yield is above that of the S&P 500 Index.
- 3M maintains an investment grade rating of AA-.
- 3M has maintained a three-year growth rate of dividends of 11.4 percent.
- 3M’s current dividend yield (2.60%) is above its five-year average historical dividend yield.
- 3M maintains a beta of 0.90, lower than the average company.
- 3M is trading toward the top of its ten-year average price/sales (P/S) ratio.
- 3M maintains very low revenue growth.
Latest Earnings & Analysis:
3M issued its earnings data on January 24th. The company reported $1.88 earnings per share (EPS) for the quarter, topping the consensus estimate of $1.87 by $0.01. Total revenue for Q4 was just over $7 billion, slightly below analyst estimates. Negative currency translation had a strong impact on total revenue, decreasing revenue by about 1%. 3M maintained total revenue of $30.1 billion in contrast with the $30.2 billion in 2015. Thus 3M basically had flat total sales year-over-year. For the full year 2016, 3M reported earnings per share of $8.16. This compared favorably with earnings per share of $7.58 per share in 2015. 3M’s operating expenses also dropped by over 2 percent in Q4, helping the bottom line.
Geographically, total sales rose by just over 1% in the United States, by 4% in Latin America & Canada, and 2.5% in the Asia-Pacific region. On the negative side, total sales declined in the old continent 2.4%, which includes Europe, Africa, and the Middle East areas. In regard to unit sales in each operation, industrials led the charge up 3%. Margins were also higher in this division, up over 2%. Sales were also positive within the healthcare and safety segments, although currency took a bite out of profits. Operating margins in this segment declined by just over 2%. Consumer product sales were down by nearly 1%, as office supply growth was weak.
The company still maintains a solid balance sheet with a growing cash balance. Cash on hand at year-end was at $2.3 billion, up over $500 million from the previous year. Free cash flow was also higher at $5.2 billion, up slightly from the 2015. During the last quarter of 2016, 3M paid out $664 million in dividends while also buying back $924 million of stock. For 2017, guidance was positive. The industrial giant expects 2017 earnings per share to be in the range of $8.45 to $8.80 per share. This would be well above the $8.16 earned in 2016. Total revenue growth is expected to be not as robust, in the 1–3% range.
3M has a very diversified portfolio with half of sales within the consumer portion of the business. This makes the firm less prone to economic malaise versus many of its customers. It’s capital friendly attitude towards shareholders is also a key advantage. The firm has paid dividends for 99 years and maintains a consistent stock buyback program. It has dominate positions in several leading industrial categories like adhesives, filters, and coatings. 3M has segmented its overall product mix into six unique segments. All receive strong research & development spending, which accounts for over 5% of total revenue per year. It also has strong exposure to faster growing emerging markets. These markets accounts for nearly half of all sales for 3M. The firm has a strong credit rating from S&P as well as a below market beta.
Despite the strong record of consistent earnings growth, the firm is trading at 19.3 times next year’s earnings, well above the market. Its price/sales ratio is also elevated, and at 3.4 is near its all-time high of 3.75 It current yield is in the middle of the long-term range. Its revenue growth, at 1 to 3% on an annual basis is below average. Overall, the firm is no doubt a blue-chip firm. But one that is priced at a premium price for its growth rate.
Based on the firm’s low revenue growth, modest yield, and high P/S ratio, 3M Company does not qualify as one of our Top 100 Dividend Stocks.
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3M Company Dividend Yield Historical Chart (Click to enlarge)
Chart Explanation: Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years.