3M Stock: A Dividend Aristocrat to Look Out in 2017 Income Investors 2017-06-23 07:34:37 3M Co.3M stockMMM stock3M dividend aristocrat3M dividend 2017 outlook3M dividend history3M business overview3M dividend increase 20173M growth prospectswill 3M offer higher dividend in 2017 In past 5 years, 3M has returned 272%, with 244% of that credited to stock price hikes. This article looks at 3M's business and growth, dividend history, and an outlook for 2017. 2017,3M Stock,Dividend Stocks,News https://www.incomeinvestors.com/wp-content/uploads/2017/06/3M-stock-Dividend-Aristocrat-150x150.jpg

3M Stock: A Dividend Aristocrat to Look Out in 2017

3M: A Dividend Aristocrat Stock 

3M Co (NYSE:MMM) has rewarded its shareholders for more than 100 years. The company has improved its revenue numbers annually, as seen in the stock price appreciation. Over the past five years, 3M stock has returned 272%, with 244% of that credited to stock price hikes. The remaining 28% via dividend income.

This article will go through everything you need to know about the stock, including 3M’s 2017 dividend outlook, why 3M stock is a “dividend aristocrat,” 3M’s growth expectations, and the history of the company.

3M’s Business Overview

3M is incorporated as a technology business, but operates in the manufacturing sector. The company is divided into five reportable business units: Industrial, Health Care, Safety and Graphics, Consumer, and Electronics and Energy.

Below is a chart breaking down how much each division contributes to 3M’s revenue and operating margins. The percentage of revenue represents the total amount accounted for before any costs. Operating profits use the revenue numbers and deduct the cost of goods sold, operating expenses (employee wages, marketing, inventory insurance cost, etc.), the depreciation of assets, and the amortization cost. The expected business growth is for a period of one year.

Business Division Revenue (%) Operating Profits (%) Expected Business Growth
Industrial 33% 31% 2% to 4%
Health Care 19% 18% 4% to 6%
Safety & Graphics 18% 23% 2% to 5%
Consumer 16% 14% 3% to 5%
Electronics & Energy 14% 14% 0% to 4%

Below is a pie chart of how each division contributes to the overall business and will affect the bottom line.  If one division has a more bullish outlook, that division receives more capital, accounting for more of the overall business as a result. But since 3M is a very large company, even a one-percent change in any division takes some time.

3M business

This chart is useful because of how it effectively breaks down the business. As a result, you can see how invested capital is well diversified among different sectors.

Industrial

The Industrial segment is the largest contributor to top-line revenue and operating margins.

This division serves many different businesses, including automotive, electronics, paper and printing, food packaging, and construction. It also manufactures, repairs, and maintains components and products for cars, aircraft, and specialty vehicles, among others. The industrial sector is also known for developing and producing technical ceramics for applications in the automotive, oil and gas, industrial, and electronics sectors, as well as the defense industry.

Health Care

The Health Care segment of 3M serves medical clinics, hospitals, pharmaceutical companies, dental and orthodontic practitioners, health information systems, and even food manufacturers. Products and services include medical supplies, skin health and infection prevention products, drug inhalation systems, oral care solutions, food safety products, and more.  The company also provides data analytics and business intelligence to other healthcare companies. The company also produces more everyday products like medical tape and teeth whitening products, as well as more specialized goods like electrodes and stethoscopes.

Safety and Graphics

This division services the safety, security, and productivity of people, facilities, and systems. It creates products and services for both individual consumers and the commercial market.

Personal consumer products include respiratory, hearing, eye, and fall protection equipment, while the commercial side of the segment sells the likes of commercial graphics sheeting and systems, architectural design solutions, and cleaning and protection products for commercial buildings.

Consumer

The Consumer segment sells products to consumer retail, office retail, office business to businesses, home improvement retailers, and drug and pharmacy retail businesses. Products produced in the division include office supply and stationery products (note pads, glue sticks), do-it-yourself home improvement items (filters, finishing materials), home care products (scrub pads, microfiber cloths),  and retail personal safety goods. 3M also owns the technology found in jackets, pants, gloves, hats, and boots that keeps people warm, called 3M Thinsulate Insulate.

Electronics and Energy

The Electronics and Energy division is the smallest division in terms of revenue contribution. This division provides solutions for improving the performance of electronic devices and other electric products.

3M also provides products and components to electronic companies, including liquid crystal display (LCD) computer monitors and televisions, cell phones and tablets, notebook computers, and automotive displays. The division also produces display light control and glare reduction products and provides computer chips, cooling, and lubrication for hard drives. 3M is also in the business of touch-based products.

Why is 3M Stock a Dividend Aristocrat?

3M stock has increased its dividend for the past 59 consecutive years, hence its appearance on the S&P 500 Dividend Aristocrat Index; a company must have increased its dividend for 25 consecutive years to be included. It is also present on the index because it meets the other criteria of being a Fortune 500 company with at least 250,000 shares being traded on a daily basis, the latter providing liquidity to investors of 3M stock.

3M`s Stock Dividend Increase History

3M has been paying a dividend for a century without missing a single payment. Reviews and increases occur annually in February.

The dividend was $1.06 per share 20 years ago, but now amounts to $4.70, or growth of 560%. Over just the last five years, the dividend has seen an increase of 196%, with annual increases in the range of 5.9% to 34.6%.  Below is a table with the details of the dividend payment over the past five years.

Ex-Dividend Date Amount Yield Change
Declaration Date Record Date Payment Date
May 17, 2017 $1.18 2.4% N/A May 09, 2017 May 19, 2017 June 12, 2017
February 15, 2017 $1.18 2.6% 5.9% February 07, 2017 February 17, 2017 March 12, 2017
November 16, 2016 $1.11 2.6% N/A November 08, 2016 November 18, 2016 December 12, 2016
August 17, 2016 $1.11 2.5% N/A August 10, 2016 August 19, 2016 September 12, 2016
May 18, 2016 $1.11 2.7% N/A May 10, 2016 May 20, 2016 June 12, 2016
February 10, 2016 $1.11 2.9% 7.8% February 02, 2016 February 12, 2016 March 12, 2016
November 18, 2016 $1.03 2.6% N/A November 10, 2016 November 20, 2016 December 12, 2016
August 19, 2016 $1.03 2.8% N/A August 10, 2016 August 21, 2016 September 12, 2016
May 20, 2016 $1.03 2.5% N/A May 12, 2016 May 22, 2016 June 12, 2016
February 11, 2016 $1.03 2.5% 19.9% December 16, 2014 February 13, 2016 March 12, 2016
November 19, 2014 $0.86 2.2% N/A November 11, 2014 November 21, 2014 December 12, 2014
August 20, 2014 $0.86 2.4% N/A August 12, 2014 August 22, 2014 September 12, 2014
May 21, 2014 $0.86 2.4% N/A May 13, 2014 May 23, 2014 June 12, 2014
February 12, 2014 $0.86 2.6% 34.6% December 17, 2013 February 14, 2014 March 12, 2014
November 20, 2013 $0.64 2% N/A November 12, 2013 November 22, 2013 December 12, 2013
August 21, 2013 $0.64 2.2% N/A August 13, 2013 August 23, 2013 September 12, 2013
May 22, 2013 $0.64 2.3% N/A May 14, 2013 May 24, 2013 June 12, 2013
February 13, 2013 $0.64 2.5% 7.6% February 05, 2013 February 15, 2013 March 12, 2013
November 20, 2012 $0.59 2.7% N/A November 12, 2012 November 23, 2012 December 12, 2012
August 22, 2012 $0.59 2.5% N/A August 15, 2012 August 24, 2012 September 12, 2012

Will 3M Offer a Higher Dividend in 2017?

In February of 2017, 3M’s dividend increased from $1.11 per share to $1.175 per share, or 5.9%. With that in mind, I believe, based on the company’s history of dividend increases, that the dividend will remain at $1.175 per share for the rest of 2017. That said, this is just my own beliefs, and further dividend hikes this year are always possible.

Will a Stock Split Occur in 2017 for 3M Stock? 

In its history of being a public company, 3M stock has seen a total of 10 stock splits, with the 11th potentially occurring this year. The last split was in 2003, when the trading price was near $140.00, and the one prior to that in 1994 was at roughly $102.00 a share. Both of these past splits resulted in the share price being divided into two and the shareholders now owning twice as many shares.

Now, with a stock split, there is no market value change. Rather, splits are done more for the interest of smaller retail investors and to make the shares more affordable for investors.

A 2017 split is possible because the stock price range has gone from $163.00 to a high of $210.00–higher than previous stock split prices. It could be a two-for-one stock split, which simply doubles the number of shares owned and reduces the trading price in half, or a three-for-one stock split, which triples the number of shares and reduces the trading price to a third of what it was. The stock split announcement could come in the second half of 2017.

Below is a table detailing 3M’s stock split history.

Year of Split Date of Split Ratio
2003 September 29, 2003 2-for-1
1994 March 15, 1994 2-for-1
1987 May 22, 1987 2-for-1
1972 May 23, 1972 2-for-1
1960 May 15, 1960 3-for-1
1956 May 18, 1956 2-for-1
1951 January 08, 1951 4-for-1
1945 November 13, 1945 2-for-1
1922 December 16, 1922 2-for-1
1920 December 24, 1920 2-for-1

Can 3M Maintain its Dividend?

As the saying goes, actions speak louder than words, and this holds true for 3M’s dividend. Aside from the previously mentioned 59 straight increases and the company having never missed a payment, 3M’s financials support a higher dividend payment, according to the company’s payout ratio, which has been between 34% to 54% over the past decade. The current ratio is within this historic average, at 52%.

Looking towards the rest of 2017 and beyond, the payout ratio could remain within its 10-year range, based on expected earnings growth. Below is a table regarding the outlook over the next four years. of earnings.

Year EPS
2017 $8.95
2018 $9.58
2019 $10.21
2020 $11.03

The earnings trend is expected to increase, which could be evidence that the dividend will remain steady going forward.

3M’Growth Prospects

3M owns more than 100,000 patents, created in-house using internal resources. On average, 3M is issued 3,000 patents per year, with 500 coming from the U.S. alone. The company invests approximately six percent of its annual sales in research and development (R&D). (Source: “3M Celebrates Innovation Milestone: Receives 100,000th Patent,” 3M Co, May 7, 2014.)

Employees are encouraged to use the available resources to create new products for one of the company’s five business segments. 3M is known to both grow its business around a patent with the intent to own it forever, or look to eventually sell it. Sometimes, it may even create a larger business unit for a strong enough product. All patents are given consideration when deploying capital.

3M recently sold off its transportation safety division, instead moving to invest in more rapidly changing trends in transportation safety and mobility. The transaction also saves money on employee wages due to the number of related division layoffs. The transaction is expected to give a $0.15-per-share boost to earnings for 2017. (Source: “3M to Sell Its Electronic Monitoring Business; Transportation Safety Division to Focus on Connected Roadways of the Future,.”3M Co, June 1, 2017.)

As part of further efforts to improve, 3M recently acquired Scott Safety from Johnson Controls. The purchase will add to self-contained breathing apparatus (SCBA) systems, gas and flame detection instruments, and other items that will complement 3M’s current portfolio of safety products. The purchase fits right into 3M’s plan of investing more in personal safety products, which is a growth area for the company. This transaction will negatively affect earnings by $0.10 per share until Scott Safety is integrated into the company. Once it is, however, margins should improve because of costs decreasing. (Source: “3M to Acquire Scott Safety from Johnson Controls,.”3M Co, March 16, 2017.)

Another recent acquisition is of medical coding company Semfinder. This purchase will broaden 3M’s healthcare portfolio on both a worldwide and technological basis, as well as accelerate the company’s goal of moving medical records from paper to digital. There should be growing demand for this business unit from medical providers of the cost savings, boosting earnings. (Source: “3M Acquires Semfinder,.”3M Co, September 6, 2016.)

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