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A Dividend Analysis Of 3M

July 2

2011
G1010892

3M Company (NYSE:MMM), together with its subsidiaries, operates as a diversified technology company worldwide. It operates in six segments: Industrial and Transportation; Health Care; Safety, Security and Protection Services; Consumer and Office; Display and Graphics; and Electro and Communications.

Yasmin Dahman

Issue: dividends and payout policy


Dividend policy I s an important subject in corporate finance, and dividends are major outlay for many corporations. It may seem obvious that firm would always want to give as much as possible back to shareholders by paying dividends. It also might seem equally obvious, however, that a firm could always invest the money for its shareholders instead of paying it out. The heart of dividend policy question is: should the firm pay out money to its shareholders or should the firm take that money and invest it for shareholders? In this paper we will explain the MMM payout policy, which type of dividends does it use? And how does it payout the dividends to fit with its business and shareholders?

Analysis
3M Company (NYSE:MMM), together with its subsidiaries, operates as a diversified technology company worldwide. It operates in six segments: Industrial and Transportation; Health Care; Safety, Security and Protection Services; Consumer and Office; Display and Graphics; and Electro and Communications. In order to send a positive signal to share market 3M Company has followed a strategy to keep its dividends consistently increasing for 51 consecutive years, where its dividend growth stock has delivered an annual average total return of 7.30% to its shareholders from end of 1998 up to 2008, and annual increase in its EPS since 1999. The ROE has remained largely between 29% and 38% with the exception of a temporary dip in 2001 to 23%. Although there is a constantly growth in annual dividends but it is still lower than the growth in EPS. Its clearly, that 3M enjoys its dividend policy which is slow dividend growth during tough economic conditions, while compensating with stronger dividend growth during boom times. 3M has actually managed to double its dividend payment on average almost every nine years since 1973. What is going now? is that the current growth of dividend is much lower than earning growth by 50% and this is good where it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. 3M is currently attractively valued. The stock trades at a P/E of 10.5, yields 4.20% and has an adequately covered dividend payment.

Conclusion
3M Company has gained a good signal while it has a constant growth rate since 1973. At the same time it has earning growth higher than the dividend growth which allows 3M to invest more in new business or in research and development especially because its main business is in technology which has dynamic change with unexpected situations and that is the reason of its low payout policy, and we can conclude that an older, profitable firm such 3M company with significant free cash flow can easily adopt a specific policy in dividends while younger firms would prefer reinvest the free cash rather than paying cash out

The article
3M Company (NYSE:MMM), together with its subsidiaries, operates as a diversified technology company worldwide. It operates in six segments: Industrial and Transportation; Health Care; Safety, Security and Protection Services; Consumer and Office; Display and Graphics; and Electro and Communications. 3M Company is a dividend aristocrat, which has been consistently increasing its dividends for 51 consecutive years. From the end of 1998 up until December 2008 this dividend growth stock has delivered an annual average total return of 7.30% to its shareholders.

At the same time company has managed to deliver an impressive 9.40% average annual increase in its EPS since 1999. In 2008 the EPS fell by 12%. The expectations for 2009 are for another drop in EPS to almost $4/share and an increase in 2010. Over the long run however, earnings for this conglomerate are relatively diversified which is a decent buffer during recessions.

The ROE has remained largely between 29% and 38% with the exception of a temporary dip in 2001 to 23%.

Annual dividends have increased by an average of 6.70% annually since 1999, which is lower than the growth in EPS. Most recently the company increased its dividends by 2% to $0.51/quarter. MMM typically enjoys a slow dividend growth during tough economic conditions, while compensating with stronger dividend growth during boom times. 3Ms dividend is safe, given the strong cash flows that the company generates from its diversified businesses.

A 7% growth in dividends translates into the dividend payment doubling almost every ten years. Since 1973 3M has actually managed to double its dividend payment on average almost every nine years. The dividend payout has steadily decreased over the past decade; due to the fact the dividend growth was much slower than earnings growth. Currently the payout is a little over 50%, which good. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

3M is currently attractively valued. The stock trades at a P/E of 10.5, yields 4.20% and has an adequately covered dividend payment. I would be a buyer of 3M at current prices, as long as it does not increase above $68.

Source http://www.dailymarkets.com/stock/2009/04/04/a-dividend-analysis-of-3m/