Excessive Dividend 50: 3M Firm

Revealed on April 14th, 2023 by Jonathan Weber

3M Firm (MMM) has elevated its dividend for greater than 60 years in a row, which makes for an distinctive dividend progress observe report. Immediately, 3M’s dividend yield is at a degree that’s approach greater than the historic norm, at round 5.7%.

The corporate’s shares have underperformed the broad market over the past yr and over a multi-year time-frame, primarily on account of headwinds from lawsuits that 3M continues to battle.

3M Firm is without doubt one of the high-yield shares in our database.

It’s also a part of our ‘Excessive Dividend 50’ collection, the place we cowl the 50 highest yielding shares within the Certain Evaluation Analysis Database.

We’ve created a spreadsheet of shares (carefully associated REITs and MLPs, and so forth.) with 5% or extra dividend yields.

You possibly can obtain your free full checklist of all securities with 5%+ yields (together with necessary monetary metrics reminiscent of dividend yield and payout ratio) by clicking on the hyperlink beneath:

On this article, we are going to analyze the outlook for 3M Firm.

Enterprise Overview

3M Firm is a diversified industrial firm that sells a really big selection of merchandise, from adhesives to non-public safety gear. Its product portfolio consists of greater than 60,000 totally different merchandise, and the corporate is energetic in additional than 200 nations across the globe.

This diversification throughout totally different product traces and totally different geographic markets has allowed 3M Firm to be extra resilient in comparison with many different industrial firms. 3M has greater than 90,000 staff, was based greater than 100 years in the past, in 1902, and is headquartered in St. Paul, Minnesota.

The corporate reported its most up-to-date quarterly outcomes on January 24. The corporate’s gross sales got here in at $8.1 billion for the quarter, which was down 6% in comparison with the earlier yr’s quarter, which was just about in step with the Wall Avenue consensus estimate.

3M Firm’s earnings-per-share for the interval got here in at $2.28, which was barely lower than anticipated, and which was down from the earlier yr’s quarter. A mess of headwinds for financial progress and industrial exercise, reminiscent of excessive inflation, rising rates of interest, and an vitality disaster in Europe, are chargeable for the adverse enterprise progress that 3M has skilled throughout the interval.

Supply: Investor Presentation

Greater uncooked materials costs have been the principle contributor to the margin decline 3M skilled throughout the interval, whereas unfavorable forex price actions additionally had a adverse impression. The US Greenback strengthened versus most currencies in 2022, which made 3M’s ex-US income price much less as soon as denominated in US {Dollars}.

Development Prospects

3M Firm has delivered strong earnings-per-share and enterprise progress over the past decade. Between 2013 and 2022, its earnings-per-share rose from $6.72 to $10.10, which pencils out to an annual progress price of 5%. That isn’t spectacular, however very strong for a dependable and established blue chip firm reminiscent of 3M Firm.

For the present yr, 3M expects an earnings-per-share decline, primarily on account of a weakening macro-economic atmosphere and a possible recession:

Supply: Investor Presentation

Prior to now, earnings-per-share progress rested on a number of contributing elements. The corporate was capable of develop its gross sales volumes over time, by getting into new markets and by introducing new merchandise. Worth will increase additionally contributed to income progress, whereas 3M Firm has additionally had a historical past of shopping for again its personal shares.

These buybacks have decreased 3M’s share rely over time, by round 20% over the past decade. A declining share rely interprets into the next portion of the corporate’s general internet revenue per every remaining share, thus buybacks add to 3M’s earnings-per-share progress in the long term.

On the whole, the identical progress drivers ought to stay intact going ahead, which is why we imagine that 3M Firm will be capable to develop its earnings-per-share at a mid-single digit tempo sooner or later, too. That being stated, the lawsuits and their unknown impression of them add some uncertainty about 3M’s future profitability.

Aggressive Benefits

3M’s aggressive benefits are largely centered round its product portfolio, patent portfolio, and profitable analysis and improvement efforts.

The corporate’s product portfolio may be very large and diversified, which implies that 3M shouldn’t be very weak to weaknesses in single finish markets, as that may be balanced out by the outcomes from different product classes.

3M invests a mid-single digit proportion of its annual gross sales into R&D, which has traditionally paid off. Round 30% of 3M’s gross sales have been made with merchandise that didn’t exist 5 years in the past, which showcases 3M’s success in creating and commercializing new merchandise. There isn’t any assure that this may proceed sooner or later, however the R&D tradition appears to be sturdy at 3M, which must be advantageous.

3M has not been invulnerable throughout recessions, however it has proven strong resilience, particularly in comparison with many different industrial firms. The corporate remained worthwhile throughout the Nice Recession and throughout the pandemic, when earnings-per-share declined by simply 4% within the 2019-2020 time-frame, earlier than hitting a brand new report excessive in 2021. The above-average resilience throughout adversarial financial environments must be maintained sooner or later, too.

Dividend Evaluation

3M Firm has an impressive dividend progress observe report, having raised its dividend for 64 years in a row. Over the past decade, dividend progress averaged 10% per yr, which is fairly sturdy.

Attributable to the truth that 3M’s dividend progress price was roughly twice as excessive as its earnings-per-share progress price over the past decade, 3M’s dividend payout ratio has risen significantly in that time-frame. Based mostly on present earnings-per-share estimates, the 2023 dividend payout ratio is 68%, which is on the higher finish of the historic vary.

This may possible not trigger a dividend minimize, because the dividend continues to be coated simply, however 3M will possible not ship an identical dividend progress price in comparison with the previous. As a substitute, it appears possible that 3M will attempt to convey down its dividend payout ratio over time, which is why dividend progress within the coming years might be subdued. Due to a excessive dividend yield of 5.7%, that won’t be a catastrophe, nevertheless.

Remaining Ideas

3M Firm has been a foul performer on a share value and complete return foundation over the past yr and the final 5 years. This was largely the results of a number of compression, nevertheless, and never the results of declining income or dividends.

Lawsuits associated to so-called “endlessly chemical compounds” and (probably) defective listening to safety tools have launched uncertainties, which is why 3M has seen its valuation compress.

Immediately, 3M Firm trades at a transparent low cost in comparison with how the corporate was valued previously, which supplies for some a number of enlargement potential going ahead.

We imagine that the corporate might ship double-digit annual returns over the following 5 years, due to a mixture of a excessive dividend yield, some earnings progress potential, and a few a number of enlargement potential.

In case you are occupied with discovering high-quality dividend progress shares and/or different high-yield securities and revenue securities, the next Certain Dividend sources will likely be helpful:

Excessive-Yield Particular person Safety Analysis

Different Certain Dividend Assets