Dividend Aristocrats Part 48: 3M Co (MMM)

3M has managed to grow revenue at 3% a year over the last decade. I expect the company to continue growing revenue at between 3% and 5% a year going forward.

3M is realigning its portfolio to provide better growth and higher margins going forward.

Source: 3M 2016 Outlook Presentation, slide 12

3M is actively looking to either sell or spin-off its health information services business. This is likely the next large step in the company’s business reorganization.

The company’s focus on improvement will likely create margin growth which will boost earnings-per-share at between 1% and 3% a year over the next several years.

To summarize I expect earnings-per-share of 7% to 11% per year from the following sources:

– Share repurchases of 3% per year

– Revenue growth of 3% to 5% per year

– Margin improvements of 1% to 3% per year

This growth combined with 3M’s current ~3% dividend yield gives investors expected total returns of 10% to 14% a year going forward.

Recession Performance & Final Thoughts

3M Co (NYSE:MMM) weathered the Great Recession of 2007 to 2009. The company saw a downturn in earnings-per-share, but quickly recovered to new earnings-per-share highs by 2010.

The company’s earnings-per-share through the last recession and into the recovery are shown below:

– 2007 Earnings-per-share of $5.60

– 2008 Earnings-per-share of $4.89

– 2009 Earnings-per-share of $4.52

– 2010 Earnings-per-share of $5.75

3M is not completely recession resistant, but is able to remain profitable during recessions. Even long-term downturns do little to put the company’s dividend at risk thanks to the company’s conservative ~50% target payout ratio.

3M is a high quality business with a long history of rewarding shareholders. It is currently a Top 25 stock based on the 8 Rules of Dividend Investing due to its solid growth rate, above-average dividend yield, and long dividend history.

3M represents the ‘gold standard’ in the manufacturing industry. Moreover, the company is trading for a dividend yield near 3% – a rare occurrence for 3M stock.

Disclosure: None