At Investment Quality Trends, dividend and value expert Kelley Wright maintains a Timely Ten of his current best ideas and an annual Lucky 13 list of each year's top recommendations. 3M Co. (MMM) appears on both of these elite lists.
3M Co. is a global manufacturer with four reportable segments — Safety & Industrial, Transportation & Electronics, Health Care, and Consumer. Most 3M products involve expertise in product development, manufacturing, and marketing, with many of the company’s products involving some form of coating, sealant, adhesive, film, or chemical additive that increases the product’s overall functionality and usability for customers.
3M has been in a world of hurt. The stock appeared to have bottomed out in October of last year at $85.35, and rallied to $121. Some profit taking was to be expected after such a run up in price, but when 3M guided to an EPS range in 2024 of $9.35 to $9.75 versus what analysts expected of $9.82 the stock sold off again. 3M’s guidance was impacted by one-time items, but the market didn’t take that into consideration.
The bottom line with 3M is whether they can maintain their dividend while paying off the $10.3 billion settlement over the forever chemicals litigation and the $5.5 billion settlement over the faulty ear plugs. Assuming that payments start in the 2024 calendar year, MMM would be paying $1.89 billion on an annual basis over the next 5-years toward these settlements.
Once the earplug settlement is finished in 2029, their payments would drop to $792 million annually over the next eight years to close out the forever chemical settlement. On the low end of their guidance, 3M would produce $5.18 billion in earnings in 2024, and on the high end, they would produce $5.4 billion. The $6 dividend per share eats up $3.32 billion of 3M’s earnings on an annual basis.
MMM would have between $1.86 billion and $2.08 billion left in retained earnings based on their 2024 guidance after all dividends are paid, and this doesn’t count the cash on hand in their balance sheet. 3M is a Dividend King, which is important to management. My guess is they will move "heaven and earth" to keep that in place.
