3M: Surging Cash Flows Make This A Must-Have Dividend Stock
Expect 3M to continue increasing its dividend payouts as it has done in the past 56 years
Founded in 1902, 3M Co (MMM) is an American multinational conglomerate, which manufactured products in six different industry segments. The company has operations in more than 65 countries, including 29 international companies with multinational operations and 35 companies with laboratories. 3M’s research and development is the company’s leading success factor, which encourages its long-term growth and stability. Its biggest competitor is Johnson & Johnson (JNJ).
Dividends Per Share
3M is one of the 30 companies included in the Dow Jones Industrial Average. It has paid dividends to its shareholders without a gap for more than 97 years and has increased the annual dividend for 56 consecutive years, making it a dividend aristocrat. The company’s dividend payout ratio is also consistently going up. Its dividend yield is close to the industry average. The yield dropped in 2013, going down to 1.81%, however for 2014, the indicated yield is currently at 2.1% based on current estimates.
The company’s dividend increased by 7% last year, and analysts are expecting it to go up by 8.5% in 2014. The company announced its quarterly dividend on May 13, 2014 of about 85.5 cents per share. The full-year dividend has gone up to $2.76, increasing at an average 5% annually.
Operating Cash Flows
Cash flow from operations has been consistently increasing mainly because of the increase in net income and efficient utilization of net working capital. Its cash flow from operations has reached almost $6 billion.
About 30-32% of 3M’s cash flow from operations is allocated to dividend payments. In 2013, the company paid $1.76 billion in dividends-an increase in 6% year-over-year (YOY).
3M has a very low debt-to-equity ratio of 0.35 as compared to the industry average of 0.9, indicating a lower risk profile. Lower debt-to-equity ratio also indicates that the firm is better positioned to pay off interest charges for current and long term liabilities. The company’s debt to equity ratio is 50.67% lower than that of Industrial Goods sector and 37.2% lower than that of Diversified Machinery.
The dividend coverage ratio delineates the ability for the company to pay back its dividend. In 2011, 3M was able to pay its dividend from the net income close to 3 times. After that, the ratio is declining, signifying that the company’s net income with respect to the total dividend has been going down. A noteworthy thing here is that the company has been able to sustain a dividend coverage of at least 2 times, articulating that it has adequate capital R&D and capex.
Bidness Etc strongly recommends 3M as safe bet for dividend investors. Its dividends are consistently increasing and its earnings per share have been robust. The company has consolidated its position over the years. Moreover, the gradual decrease in 3M’s debt-to-equity ratio over the years and improved cash flow from operations all seem to point to strong returns investment in the future.
Even the company’s bond rating stands at AA- which indicates good financial standing. Hence, 3M has a strong financial backing, and going by the 2014 estimates, will yield greater returns in the year.