3M COMPANY $185(New York symbol MMM; Income Growth Dividend Payer Portfolio, Manufacturing & Industry sector; Shares outstanding: 582.3 million; Market cap: $107.7 billion; Dividend yield: 2.9%; Dividend Sustainability Rating: Above Average; www.3m.com) started up in 1902 as the Minnesota Mining & Manufacturing Company.
While it started off making sandpaper and abrasives for industrial clients, but it later developed other consumer and manufacturing-related goods. They included pressure-sensitive masking and packaging tape, audio-recording tape and reflective highway markings.
Today, 3M makes more than 60,000 items, including air purifiers, medical device components and bandages. Top-selling brands include Post-it notes, Scotch tape, Scotch-Brite cleaning products, Scotchguard protection and Thinsulate insulation.
Over a century of uninterrupted dividends
Starting with the March 2018 payment, 3M investors received a quarterly dividend of $1.36 a share, up 15.7% from $1.175. The new annual rate of $5.44 yields 2.9%. The company has paid dividends continuously for over 100 years and has increased that rate each year for the past 60 years.
3M’s sales rose 3.1%, from $30.9 billion in 2013 to $31.8 billion in 2014. However, unfavourable exchange rates cut its sales to $30.3 billion, and to $30.1 billion in 2016.
In October 2017, 3M paid $2.0 billion for Scott Safety, a North Carolina maker of safety devices and respiratory and protective equipment for firefighters, police and the military. Thanks to that purchase, the company’s sales rebounded to $31.7 billion in 2017.
3M’s overall earnings gained 20.6%, from $4.7 billion in 2013 to $5.6 billion in 2017. the company is an aggressive buyer of its own shares. As a result, its per-share earnings rose at a faster rate of 36.5%, from $6.72 to $9.17.
In the three months ended September 30, 2018, overall sales fell 0.2%, to $8.15 billion from $8.17 billion a year earlier. If you factor out currency rates and businesses that 3M bought and sold, sales improved 1.3% in the quarter.
Earnings rose 8.0%, to $1.5 billion from $1.4 billion. The company spent $1.1 billion on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose at a faster rate of 10.7%, to $2.58 from $2.33.
That earnings increase is mainly due to a $0.22-a-share benefit from lower U.S. tax rates. An ongoing plan to improve productivity added another $0.12 a share.
3M ended the quarter with cash of $3.5 billion, or $6.05 a share. Its long-term debt of $13.5 billion is a low 13% of its market cap.
High U.S. dollar weighs on 3M’s earnings
The stock is down 29% from its all-time high of $260 in January 2018. That’s largely because the rising U.S. dollar hurts the contribution of its overseas operations, which supply 60% of its total sales. Trade tensions with China and other countries have also hurt 3M’s sales to automakers.
3M now expects to earn $9.90 to $10.00 a share for all of 2018. That’s down from its earlier range of $10.20 to $10.45 a share. The stock trades at 18.6 times the midpoint of its new range. That multiple is reasonable, as 3M continues to spend around 6% of its sales on research.
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