3M’s Dividend History and Safety
Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth-building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at 3M’s dividend history and safety…
Business Overview and Highlights
3M (NYSE: MMM) is a $90 billion business based out of Minnesota. The diversified manufacturing business employs 93,000 people. Last year, 3M pulled in $33 billion in sales, and that works out to $352,000 per employee.
The company operates within the industrial sector and maintains a solid credit rating (AA-) from the S&P. This allows 3M to issue cheap debt to grow the business and pay dividends. 3M is made up of five different businesses: industrial, safety and graphics, healthcare, electronic & energy, and the consumer division.
3M is a prominent dividend stock because of its long history of dividend raises. It has raised its dividend 61 consecutive years, making it a Dividend Aristocrat and a “Dividend King.”
On August 6, 3M’s board of directors declared a dividend of $1.44 per share. The dividend was payable on September 12 to shareholders of record as of August 16.
3M’s Dividend History
The company paid investors $2.04 per share a decade ago. Over the last 10 years, the dividend has climbed to $5.44. That’s a 167% increase, and you can see the annual changes below…
The compound annual growth is 10.3% over 10 years… but over the last year, the dividend climbed 15.7%. The increase in dividend growth is a good sign. 3M might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
3M’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 3.68%, and that’s above the 10-year average of 2.91%. The chart below shows the dividend yield over the last 10 years…
The higher yield shows that investors have bid down the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that every $1 that 3M earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other noncash items. A better metric is free cash flow.
Here’s 3M’s payout ratio based on free cash flow over the last 10 years…
The ratio is fairly steady over the last 10 years, and the trend is up. The last year shows a payout ratio of 65.8%. This gives wiggle room for 3M’s board of directors to raise the dividend.
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For more information on dividend-paying companies, check out our Dividend Stocks page. There is a wealth of information about the latest and greatest in the dividend investing world. Now you know about 3M’s dividend, but what about Altria’s?