3M Company: 56 Years of Dividend Gains

11/04/2014 7:00 am EST


Patrick McKeough

Editor, Successful Investor

Our latest featured US stock recommendation first started up in 1902, when it was called the Minnesota Mining & Manufacturing Company, notes Pat McKeough, editor of TSI Network.

3M Company (MMM) now makes over 55,000 different products, including pressure-sensitive masking and packaging tape, air purifiers, medical device components, and reflective highway signs.

Top brands include Post-it notes, Scotch tape, Scotch-Brite cleaning products, Scotchguard protection, and Thinsulate insulation. Its wide variety of products cuts its reliance on a single industry or customer.

Sales from outside the US account for two-thirds of its total. Because the company’s product base is so broad, its results tend to track the overall global economy.

As the world rebounded from the 2008/2009 recession, 3M’s sales jumped 33.5%, from $23.1 billion in 2009 to $30.9 billion in 2013.

Earnings gained 45.9%, from $3.2 billion in 2009 to $4.7 billion in 2013. Per-share earnings rose at a faster rate of 48.7%, from $4.52 to $6.72, on fewer shares outstanding. 3M’s strong balance sheet continues to support expansion.
Part of 3M’s growth comes from acquisitions, which tend to enhance its expertise in certain fields. Examples include Ceradyne, a maker of strong, temperature-resistant ceramics, which 3M bought for $798 million in November 2012.

3M recently paid $855 million for the remaining 25% of its Japanese joint venture with Sumitomo Electric Industries. This business was formed in 1961 and makes over 30,000 products, mainly for Asian markets. Owning 100% of it will add $0.08 a share to 3M’s annual earnings.

Another key to 3M’s growth is its ability to develop innovative products. It spent 5.5% of its sales on research in the latest quarter, but it plans to raise that to 6.0% by 2017. This should help 3M meet its goal of raising its sales by 4% to 6% a year to 2017.

The company’s strong balance sheet continues to support its expansion. As of June 30, 2014, its long-term debt was $5.3 billion, or a low 6% of its market cap. It also held cash of $3.0 billion or $4.64 a share.

In addition, 3M has raised its dividend each year for the past 56 years. The current annual rate of $3.42 yields 2.5%.

3M recently announced that it would buy back up to $12 billion worth of shares.
There is no time limit for these purchases. These buybacks will help increase the company’s likely 2014 earnings by 11.3%, to $7.48 a share.

The stock trades at 18.6 times its 2014 earnings estimate. That seems high for a cyclical manufacturing firm, but 3M is a leader in most of its markets.

That means it can charge higher prices, particularly for new products that face little competition.

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