The most recent dividend increase was in February, when the Board of Directors approved a 4.80% increase to 55 cents/share. The major competitors of 3M include General Electric (GE), Carlisle (CSL) and Raven Industries (RAVN).
Over the past decade this dividend growth stock has delivered an annualized total return of 8.60% to its loyal shareholders.
The company has managed to deliver an increase in EPS of 13.60% per year since 2001. Analysts expect 3M to earn $6.21 per share in 2011 and $6.95 per share in 2012. This would be a nice increase from the $5.63/share the company earned in 2010.
Growth in EPS would come from higher revenues due to the global economic rebound from the 2007 – 2009 recession, as well as synergies realized from recent acquisitions of companies such as Cogent. Growth in developing countries such as China should also add to future profitability. The real growth kick factor behind 3M however is the company’s innovative products. 3M has spent approximately six percent of its revenues on innovation in the form of R&D over the past decade. 3M’s culture, where business units are encouraged to generate more revenues by introducing new products should bolster the company’s future profitability.
Over the past decade, the return on equity has consistently remained above 27%. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 6.40% per year since 2001, which is lower than the growth in EPS.
A 6.40% growth in distributions translates into the dividend payment doubling every 11 years. If we look at historical data, going as far back as 1973, we see that 3M has actually managed to double its dividend every nine and a half years on average.
Over the past decade the dividend payout ratio has steadily decreased, as EPS growth easily outstripped dividend growth A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently 3M is trading at 16.30 times earnings, yields 2.30% and has a sustainable dividend payout. The stock is close to my entry criteria, and could be a buying opportunity on dips below $88. The slow dividend growth as of recently however has stopped me from adding to this position as of lately.
Full Disclosure: Long MMM