The fact that 3M Company has paid dividends without interruption for 100 years—and raised its dividend each of the past 59 years—is a firm indication of its blue chip credentials. Yet it continuously renews those credentials by making key acquisitions, letting go of declining operations and spending wisely on research and development. Its sales and earnings rose again in the most recent quarter, and the dividend continues to look very secure.
3M COMPANY (New York symbol MMM; www.3m.com) makes over 60,000 consumer and industrial goods, including Post-It notes, Scotch tape, Scotchguard fabric protection and Thinsulate insulation.
The company’s sales rose 6.4%, from $29.9 billion in 2012 to $31.8 billion in 2014. Overseas markets supply roughly 60% of 3M’s revenue. Due to unfavourable currency exchange rates, sales fell to $30.3 billion in 2015, and to $30.1 billion in 2016.
The company’s earnings gained 11.5%, from $4.4 billion in 2012 to $5.0 billion in 2014. 3M is an aggressive buyer of its own shares. As a result, its per-share earnings rose at a faster rate of 18.5%, from $5.96 to $7.49.
Overall earnings then fell 2.5% to $4.8 billion in 2015. However, earnings per share rose to $7.58 on fewer shares outstanding. In 2016, 3M’s earnings improved to $5.05 billion, or $8.16 a share.
In the second quarter of 2017, the company’s sales rose 1.9%, to $7.8 billion from $7.7 billion a year earlier. If you factor out currency rates and businesses that 3M bought and sold, sales improved 3.5% in the quarter.
Earnings in the quarter gained 22.6%, to $1.6 billion from $1.3 billion. Due to fewer shares outstanding, per-share earnings jumped 24.0%, to $2.58 from $2.08. However, the latest earnings included a $0.33 a share gain on the recent sale of smaller businesses. 3M’s earnings also continue to benefit from a restructuring plan, which includes job cuts and selling less-profitable businesses. As a result, the company’s gross margin (gross profits as a percentage of sales) improved to 28.0% in the latest quarter from 24.4% a year earlier.
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In addition to lower costs, 3M is using acquisitions to spur its earnings. For example, it recently agreed to buy Scott Safety, a North Carolina maker of safety devices and respiratory and protective equipment for firefighters, police and the military. The company will pay $2.0 billion for this business. The new operations should add $0.10 to 3M’s earnings per share in the first year.
The company can easily afford to expand: As of June 30, 2017, its long-term debt was $11.1 billion, or just 9% of its market cap. 3M also held cash of $2.8 billion.
In addition, the company will free up more cash by selling its less-important operations. They include its electronic monitoring business, which makes a variety of equipment to track individuals. The company will receive $200 million when it completes the sale later this year.
The stock trades at 22.3 times the $8.93 a share that 3M will likely earn in 2017. That’s an acceptable p/e in light of 3M’s high market share and research spending. Those expenses equalled 6.1% of sales in the second quarter.
3M has also increased its dividend each year for the past 59 years. The current annual rate of $4.70 yields 2.4%.
Recommendation in Wall Street Stock Forecaster: BUY
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