3M’s Commitment To Returning Capital Is Great For Investors

by Trefis Team
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The diversified industrial conglomerate, 3M (NYSE:MMM), has a robust dividend policy which is highlighted from its long-term dividend track record and high payout ratio. The company has paid dividends to its shareholders consecutively for the last 97 years. More importantly, it has increased dividends successively for the last 56 years. In 2013, the company anticipates to pay dividends of $2.54 per share to its shareholders, up from $2.36 per share it paid last year. [1] At Friday’s (September 13) closing price of $118.60, this translates to a yield of 2.14%.

Additionally, on average 3M has paid out 40% of its earnings as dividends to its shareholders. Such a high payout ratio coupled with the long history of dividend payments makes 3M a highly attractive stock for investors looking to invest in dividend-paying stocks. The track-record clearly highlights the company’s commitment to dividends.

Looking ahead, 3M says that it will raise its future dividends in line with its earnings growth. At the same time, it targets an earnings growth of 9%-11% per year for the next five years. We figure that the company can achieve this earnings growth on the strength of its diversified business interests that span industrial, health care, consumer, safety, graphics and electronic markets driven by its strong and growing commitment to research. Thus, it is highly likely that 3M’s shareholders will see good dividend increases in the near-term.

We currently have a stock price estimate of $115 for 3M, marginally below its current market price.

See our complete analysis of 3M here

Greater Commitment To Stock Repurchases

In addition to dividends, 3M has an active share repurchase program. During 2003-07, the company repurchased shares worth $10 billion and during 2008-12, it repurchased shares worth $7 billion. For the next five years, 2013-17, the company anticipates it will raise its stock repurchases to between $7.5 billion and $15 billion. [1] At a market cap of around $81 billion at Friday’s (September 13) closing price, stock repurchases reach a significant proportion of the company’s market cap. Together, through these two channels – dividends and stock repurchases – 3M is returning significant cash to its shareholders.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. 3M Company at Jefferies Global Industrials Conference, August 14 2013, www.3m.com [] []
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