3M’s recent healthcare division spinoff allows it to concentrate on its core industrial and consumer products businesses. In fact, its history of innovation across product lines should position it to keep meeting evolving market needs.
The recent settlements of major lawsuits have also removed significant uncertainties. This allows the company to move forward with reduced legal risks and more predictable financial outlooks.
Meanwhile, the stock trades at 18.6 times the company’s forward earnings forecast and offers a solid dividend too.
3M COMPANY (New York symbol MMM) spun off its Health Care division as a separate firm called Solventum Corp. (New York symbol SOLV) on April 1, 2024. That business makes products to treat and prevent infection in wounds; it also manufactures dental filling materials, and filtration and purification products.
Investors received one share of Solventum for every four shares of 3M they held. 3M will retain a 19.9% stake in the new firm, but it plans to sell those shares within five years.
3M’s remaining businesses makes a wide variety of industrial and consumer products, including Post-it notes, Scotch tape, Scotch-Brite cleaning products, Scotchguard fabric protection and Thinsulate insulation.
Due to the spinoff, 3M cut your quarterly dividend by 53.6%. Starting with the June 12, 2024, payment, investors now receive $0.70 a share instead of $1.51. The new annual rate of $2.80 yields 2.1%. The lower dividend rate should be more sustainable without the cash flow from Solventum. Investors should note that Solventum plans to use its excess cash to pay down debt instead of paying a dividend.
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3M is now transferring $2.5 billion (about 60%) of its U.S. pension payment obligations to Metropolitan Tower Life Insurance Company.
As a result, the company will record a one-time charge of between $800 million to $900 million in the second quarter of 2024. To put that in context, it earned $928 million, or $1.67 a share, in the first quarter of 2024. However, the transaction will eliminate 3M’s need to make future payments to the plan.
Dividend Stocks: 3M’s Lawsuit liabilities are now accounted for
Meanwhile, 3M recently agreed to settle lawsuits related to the release of polyfluoroalkyl substances (PFAS) from its operations in several U.S. cities. PFAS chemicals resist heat, oil, stains and water and are used in a number of products. Under the settlement, 3M will pay $10.3 billion over the next 13 years.
3M has also agreed to settle claims regarding defects in earplugs it manufactured for the U.S. Army. It will pay a total of $6.0 billion, consisting of $5.0 billion in cash and $1.0 billion in common shares, between 2023 and 2029.
Getting that uncertainty behind it is likely one of the major reasons the firm has returned 67.4% in the last year including 48.7% in 2024.
3M expects its sales for all of 2024 will rise about 1%. It also predicts its earnings will range from $6.80 to $7.30 a share. The stock trades at a reasonable 18.6 times the midpoint of that range.
Due to the dividend cut, 3M’s annual dividend rate has now declined by an average of 13.4% in the past 5 years. Its TSI Dividend Sustainability Rating is now Average.
Recommendation in Wall Street Stock Forecaster: 3M Company is a buy.
