MMM 104.81 (-0.15%)
US88579Y1010ConglomeratesConglomerates

Last update on 2024-06-25

3M (MMM) - Dividend Analysis (Final Score: 8/8)

Analyze 3M's (MMM) robust dividend policy with an 8/8 score, showing impressive performance and stability for income-focused investors.

Knowledge hint:
The dividend analysis assesses the performance and stability of 3M (MMM) dividend policy using a 8-criteria scoring system.
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Short Analysis - Dividend Score: 8

We're running 3M (MMM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Criteria
Dividend Yield Higher than the Industry Average?
1
Average annual Growth Rate higher than 5% in the last 20 years?
1
Average annual Payout Ratio lower than 65% in the last 20 years?
1
Dividends Well Covered by Earnings?
1
Dividends Well Covered by Cash Flow?
1
Stable Dividends Since the Company Began Paying Dividends?
1
Dividends Paid for Over 25 Years?
1
Reliable Stock Repurchases Over the Past 20 Years?
1

Based on an 8-criteria system, 3M (MMM) has performed well in several areas of its dividend policy evaluation. Its dividend yield is significantly higher than the industry average, despite recent stock price declines. Historically, the company's average annual dividend growth rate has been strong, although recent years show a slower growth. The average payout ratio for the last 20 years is lower than the desired 65%, indicating a conservative and sustainable approach. Dividends have generally been well covered by earnings and cash flows, although recent data points to potential issues. The company has shown stability with dividends not dropping significantly for over two decades, and has consistently paid dividends for over 25 years. Additionally, 3M has engaged in reliable stock repurchases over the past 20 years.

Insights for Value Investors Seeking Stable Income

3M's strong dividend yield and history of consistent dividend payments make it attractive for income-focused investors. However, recent signs of slower dividend growth and challenges in covering dividends with current earnings suggest that potential investors should be cautious and thoroughly examine the underlying financial health. If the recent trends continue, it could indicate financial headwinds. It might be worth considering for long-term growth if one is comfortable with the current risks.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

The dividend yield measures the annual dividend payment relative to the stock's price. It's significant as it indicates the income generated per dollar invested, showcasing how much investors earn through dividends. A higher yield suggests an attractive income for investors, especially compared to industry peers.

Historical Dividend Yield of 3M (MMM) in comparison to the industry average

3M's dividend yield of 6.5646% is significantly higher than the industry average of 2.55%. Historically, 3M's dividend yield has trended upward, peaking in the recent years with 6.5646% in 2023. This increase can be indicative of either heightened dividend payouts or a decline in stock price. Examining stock price data, 3M's stock price decreased from $159.31 in 2018 to $91.4 in 2023, while the dividend per share rose from $5.44 to $6. The higher yield amidst falling stock prices suggests potential undervaluation or increased risk. Thus, while the high yield is attractive to income-focused investors, it warrants caution due to the underlying stock price decline.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate examines the annualized percentage growth rate of the dividend paid by the company over a specified period. It is a critical metric for assessing a company's ability to increase its dividends, showcasing its financial health and profitability. A higher dividend growth rate, particularly above 5%, signals robust earnings growth and a strong commitment to returning value to shareholders.

Dividend Growth Rate of 3M (MMM)

In the case of 3M, analyzing the dividend per share ratio over the last 20 years shows varied growth rates. Notably, the growth in years 2014, 2015, and 2018 stand out significantly at 34.6%, 19.88%, and 15.74% respectively, outperforming the average dividend ratio of 8.06%. However, recent years show a steep decline with growth rates barely making it above 1% from 2021 up to 2023. While historical data shows that 3M experienced periods of strong dividend growth, this recent trend casts an unfavorable light on the company's future dividend potential if the downward trend continues, thus indicating a probability of financial headwinds or strategic shifts that shareholders should thoroughly analyze.

Average annual Payout Ratio lower than 65% in the last 20 years?

Criterion 1.2: Average Payout Ratio lower than 65% in the last 20 years

Dividends Payout Ratio of 3M (MMM)

The average payout ratio for 3M (MMM) over the last 20 years stands at approximately 43.21%. This falls well within the desired threshold of 65%, meaning the company typically uses less than 65% of its earnings to pay dividends. This conservative approach is beneficial for several reasons. Firstly, it indicates that 3M has a sizable buffer to maintain and potentially increase dividends even if earnings were to suffer in the short-term. Secondly, a lower payout ratio also implies that the company retains more earnings for reinvestment into itself, which can fuel future growth. Particularly notable was the sharp negative spike in 2023 with a payout ratio of -47.51%, which might be indicative of an unusual event or one-time charge affecting earnings. Nonetheless, looking at the broader trend, 3M has been maintaining a payout ratio well below the 65% mark, which is a favorable sign for sustainable dividend payments.

Dividends Well Covered by Earnings?

Dividends are well covered by earnings when a company's earnings per share (EPS) is significantly higher than its dividend per share. This indicates that the company is generating enough income to comfortably pay out dividends.

Historical coverage of Dividends by Earnings of 3M (MMM)

Firstly, the earnings per share (EPS) of 3M have generally been on an upward trajectory between 2003 ($3.02) and 2021 ($10.22), with some fluctuations and a notable negative EPS in 2023 (-$12.63). On the other hand, 3M's dividends per share consistently grew from $1.32 in 2003 to $6.00 in 2023. The 'Dividends covered by EPS' ratios hover around 35-60% from 2003 to 2022, indicating that 3M has been able to cover its dividends with earnings consistently over the years. This ratio peaked in 2019 with earnings covering dividends at around 72.72%, then dropped to lower but still acceptable levels until 2021. However, in 2023, the negative EPS resulting in a negative ratio suggests that 3M is currently struggling to cover its dividends with its earnings, presenting a significant deviation from their historical performance. Overall, the long-term trend has been good until 2023, where it appears unsustainable and a cause for concern if it continues.

Dividends Well Covered by Cash Flow?

Dividends covered by cash flow is a key metric to assess the sustainability of dividend payments. It is calculated by dividing free cash flow by the total dividends paid. A ratio above 1 indicates that the company generates enough cash to cover its dividends, which is a positive sign for dividend investors.

Historical coverage of Dividends by Cashflow of 3M (MMM)

The trend of dividend coverage by free cash flow for 3M from 2003 to 2023 shows generally positive results, indicating that the company has sufficient free cash flow to cover its dividends most of the time. Notably, the ratio consistently held above the 0.5 mark, which implies that 3M has managed its dividend payouts well in relation to the free cash flow generated. However, the spike to 0.8768 in 2022 should be cautiously observed as it may indicate a stress in covering dividends that year. On average, 3M's strong free cash flow position allows healthy and sustainable dividend payments, making it attractive for income-focused investors. In conclusion, the overall dividend coverage by cash flow appears solid for 3M, suggesting good financial health and prudent dividend management, though the slightly increasing trend warrants a close watch.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Historical Dividends per Share of 3M (MMM)

From the provided data, the dividend per share for 3M (MMM) has shown a generally upward trend over the past two decades. The only significant change was between 2013 and 2014, where it increased sharply from $2.54 to $3.42. However, there are no records of the dividend per share dropping by more than 20% in any given year. The constant growth in dividends can be seen as a positive trend for income-seeking investors, suggesting financial stability and a strong commitment to returning value to shareholders. Therefore, it can be concluded that 3M meets the criterion for stable dividends over the past 20 years, which is a good sign for long-term dividend investors.

Dividends Paid for Over 25 Years?

This criterion examines whether a company has consistently paid dividends for at least the past 25 years. It indicates the company's commitment to returning profits to shareholders and its financial stability.

Historical Dividends per Share of 3M (MMM)

The data shows that 3M (MMM) has paid and steadily increased its dividends each year from 1998 to 2023, with the dividend per share rising from $1.1 to $6. This demonstrates a remarkable consistency and commitment to sharing profits with shareholders for over 25 years. The increasing trend in dividend payments further highlights 3M's strong financial performance and the ability to generate consistent cash flows. Such a robust dividend history is a positive indicator for both income-focused investors and those seeking long-term growth.

Reliable Stock Repurchases Over the Past 20 Years?

The reliability of stock repurchases over the past 20 years.

Historical Number of Shares of 3M (MMM)

The data shows that 3M has reliably engaged in stock repurchases in 16 out of the past 20 years. The average number of shares repurchased per year over this period is approximately -1.7768%. This consistent reduction in the number of outstanding shares is generally a good trend for shareholders as it often leads to an increase in earnings per share (EPS) and can indicate management's confidence in the company's future prospects.


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