A recent split-off transaction will help support 3M Company’s share buyback plan as it looks to restore revenues and cut costs despite weaker demand.
The dividend has just been raised. Meanwhile, the stock trades at just 11.9 times the company’s 2023 earnings forecast.
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3M COMPANY (New York symbol MMM; www.3m.com) makes over 60,000 consumer and industrial goods, including air purifiers, adhesives, bandages and components for medical devices. Its main brands include Post-it notes, Scotch tape, Scotch-Brite cleaning products, Scotchguard protection and Thinsulate insulation.
On September 1, 2022, 3M merged its Food Safety business with Neogen Corp. (New York symbol NEOG) in a split-off transaction. 3M investors who opted to participate now hold 50.1% of the combined firm, with Neogen shareholders holding the remaining 49.9%. As part of the deal, 3M received a cash payment of $828 million.
Those funds helped support 3M’s share buyback plan—it spent $928 million on buybacks in the first nine months of 2022. The company still has $4.66 billion remaining under its current repurchase authorization.
If you exclude costs related to the Neogen transaction and other unusual items, 3M’s earnings in the three months ended September 30, 2022, rose 4.3%, to $2.69 a share from $2.59 a year earlier. That beat the consensus estimate of $2.60 a share.
However, revenue in the quarter fell 3.7%, to $8.62 billion from $8.94 billion. The drop was partly due to a $130 million decline in sales of disposable face masks as the COVID-19 pandemic eased. That missed the consensus revenue forecast of $8.71 billion.
Dividend Stocks: Earnings may fall but the shares are cheap for 3M Company
Due to weaker demand for materials that go into a wide variety of consumer products and electronic items (smartphones, tablets and televisions), 3M expects its earnings in 2023 will fall by about 11% to $8.75 a share. The stock trades at 11.9 times that forecast. The company is now cutting 3% of its workforce, which should improve its long-term profitability.
3M raises your quarterly dividend with the March 2023 payment by 0.7%. Investors then receive $1.50 a share instead of $1.49. The new annual rate of $6.00 yields a high 5.8%. 3M has paid dividends continuously for over 100 years and has increased that rate each year for the past 65 years.
3M has increased its annual dividend rate by an average of 2.0% in the past 5 years. Its TSI Dividend Sustainability Rating is Above Average.
We continue to see 3M as a buy for income investors. The company has paid dividends continuously for over 100 years and has increased that rate each year for the past 65 years. The latest increase was just this month meaning investors now receive $1.50 a share instead of $1.49. The new annual rate of $6.00 yields a high 5.3%.
The stock is down due to lawsuits regarding ground chemicals and earplugs. If successful, those payouts could hurt 3M’s earnings and dividends. However, it’s likely the company will settle these cases instead of facing uncertain court trials. 3M has also set aside funds to settle these cases.Note that the company is also cutting 3% of its workforce, which should improve its long-term profitability and dividend sustainability.
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3M stock price is DOWN 50% in the last 5 years.
We continue to see 3M as a buy for income investors. The company has paid dividends continuously for over 100 years and has increased that rate each year for the past 65 years. The latest increase was just this month meaning investors now receive $1.50 a share instead of $1.49. The new annual rate of $6.00 yields a high 5.3%.
The stock is down due to lawsuits regarding ground chemicals and earplugs. If successful, those payouts could hurt 3M’s earnings and dividends. However, it’s likely the company will settle these cases instead of facing uncertain court trials. 3M has also set aside funds to settle these cases.Note that the company is also cutting 3% of its workforce, which should improve its long-term profitability and dividend sustainability.