3M – Increases Dividend

On Feb 11th, 3M announced a 4.2% increase in their quarterly dividend. Making 2008 the 50th consecutive year that the company has increased their dividend. Although, the dividend increase is only marginally above the rate of inflation their payout ratio has slowly been coming down. The 5 year average payout ratio is approximately 39% while their current payout ratio is about 33.5%. The Moneygardener has suggested on his blog that perhaps the paltry dividend increases are a result of 3M bulking up for future acquisitions and I certainly agree that’s a probable option. However, another reason for the small dividend increase could simply be that management is taking a cautious approach. I’m speculating that the management at 3M is like most of the large and small players in the market and just waiting to see what happens to U.S economy. Will there be a recession? If so how bad will it be? Although, 60% of 3M’s revenue now comes from outside the U.S they are still very closely tied to the U.S economy and are often used as a barometer for it's overall health. As an investor in 3M I like to management taking a cautious approach. Personally, I would rather a small dividend increase in uncertain markets than a large dividend increase that could become unsustainable if global markets start to erode.

3M - MMM

Let’s start things off by taking a look at this member of the “Broad Dividend Achievers”.

“3M Company is a diversified technology company with leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation and other businesses. They are an integrated enterprise characterized by substantial intercompany cooperation in research, manufacturing and marketing of products.”

They trade under the symbol MMM on the New York Stock Exchange and are included in the following indexes Dow Jones Composite, Dow Jones Industrial, S&P 100, S&P 500 and S&P 1500 Super Comp.

-Current P/E – 14.5X
-2008 Estimated PE – 14.7X
-2009 Estimated PE – 13.3X
-ROE – 37.74%
-Current Yield – 2.36%
-5 Year Average Yield – 2%
-Current Payout Ratio – 33.5%
-5 Year Historical Payout Ratio – 39%
-3 year dividend growth rate – 10.02%
-5 year dividend growth rate – 10%

Other Facts:
-Dividend History: Paid quarterly since 1916
-60% of their revenues now come from outside the US
-Have a long history of innovation
-S&P Rating: 3 stars, Hold, $85 target price
-Argus Rating: Buy, $105 target price

Calculated Fair Value:
The fair value calculated by the American Dividend Investor is $85.62. This is virtually identical to the target calculated by the analysts at S&P. This represents a 7.86% discount to the current price of $79.52.

[No information provided on this site should be interpreted as either advice or a recommendation. Please do your own research and consult your own financial advisor before buying or selling.]