The company’s last dividend increase was in February 2012 when the Board of Directors approved a 7.30% increase to 59 cents/share. The company’s largest competitors include General Electric (GE), Carlisle (CSL) and Raven Industries (RAVN).
Over the past decade this dividend growth stock has delivered an annualized total return of 5.40% to its shareholders.
The company has managed to deliver 10.20% in annual EPS growth since 2002. Analysts expect 3M Company to earn $6.40 per share in 2012 and $6.97 per share in 2013. In comparison 3M Company earned $5.96/share in 2011.
The company has a diverse product base, and global operations, with sales expected to grow by 4% in 2012. The company spends 5% on R&D, and has been able to invent innovative products to bolster its bottom line. Future growth will also be achieved through expansion and extension of existing product lines as well as by expansion in the company’s international operations, particularly in emerging markets such as China. Strategic acquisitions that generate synergies when added to one of its existing divisions could also lead to long-term growth. Cost initiatives as well as consistent share buybacks will be another tool that management will use to increase earnings per share.
The return on equity has been in a decline since hitting a high of 37.70% in 2007. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 6.50% per year over the past decade, which is lower than to the growth in EPS. 3M Company slowed down the growth in dividends during the financial crisis, and only recently has it started raising them back above the rate of inflation.
A 6% growth in distributions translates into the dividend payment doubling every twelve years. If we look at historical data, going as far back as 1974 we see that 3M Company has managed to double its dividend every nine and a half years on average.
The dividend payout was in a decline between 2002 and 2007, as the company raised dividend at a slower rate than earnings growth. The economic downturn caused a spike in this indicator,until it returned to 37% over the past two years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, 3M Company is attractively valued at 13.80 times earnings, yields 2.80% and has an adequately covered dividend. I would consider adding to my position in the stock subject to availability of funds.
Full Disclosure: Long MMM
- High Yield Dividend Stocks in Gurus' Portfolio
- Top dividend stocks of Warren Buffett
- Top dividend stocks of George Soros