3M Company: 98 Years of Dividends

10/07/2015 8:00 am EST


Patrick McKeough

Editor, Successful Investor

Our latest featured recommendation combines one of the most durable dividends in America with a dynamic growth strategy, explains Pat McKeough, editor of TSI Network.

3M Company (MMM) is well known for everyday products such as Scotch tape and Post-it notes and it continues to spend steadily on the research and development of new products.

3M started off making sandpaper and abrasives for industrial clients. Today, it makes more than 55,000 items, including air purifiers, medical device components, and bandages.

Moreover, 3M is a leader in most of its markets. That means it can charge higher prices, particularly for new products that face little competition.

The company fuels its growth by constantly improving its existing products and developing new ones. In 2014, it spent 5.6% of its sales on research; it plans to boost that to 6.0% in 2017.

In addition, 3M uses acquisitions to get access to certain technologies or move into new markets.

In 2012 it bought Ceradyne, a maker of temperature-resistant ceramics. In 2014, 3M bought Treo, which makes software that health plan providers use to collect and analyze patient data.

This year, 3M announced a $2.5-billion deal for Capital Safety, a maker of harnesses, self-retracting lifelines, and other gear for protecting workers from falls.

This looks like a good fit with 3M’s other safety equipment, such as protective eyewear, face masks, and earplugs. Demand is growing strongly as governments step up enforcement of safety regulations.

The company’s strong balance sheet will let it keep expanding. As of June 30, 2015, its long-term debt was $8.4 billion or just 9% of its market cap.

The company has paid dividends without interruption for 98 years. It has also raised its payout annually for the past 57 years. The current annual rate of $4.10 yields 2.9%. We'd rate the stock a buy.

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