3M Co. (NYSE: MMM) traces its roots back to 1902, when it was a small mining venture. At its beginning, 3M was known as Minnesota Mining and Manufacturing. In the 114 years since then, 3M has steadily grown into one of the largest industrial conglomerates in the world. It has earned over 100,000 patents in its history.
Its products are used in nearly every industry, across the world. A few of 3M’s better-known products include Post-it Notes and Scotch tape. But its future growth is likely to be generated by its health care and graphics businesses, as well as its global expansion.
3M stock has performed well in recent periods. Shares have returned 14% so far this year, as the company has continued to grow sales and profit, even in a difficult global economic climate.
3M generates very high levels of cash flow, and it has returned huge amounts of cash to investors for many years. In fact, the 3M dividend record makes it a Dividend Aristocrat.[ad#Google Adsense 336×280-IA]It has increased its dividend every year for nearly six decades, which is why income investors should take a closer look at 3M.
Diversification Pays Dividends
3M’s business is split up among several businesses, which include industrial, consumer, health care, safety and graphics, and electronics and energy.
The best-performers for 3M so far this year are health care and safety and graphics.
Health care segment sales increased 3.5% over the first half of the year.
This is not surprising, since global health care spending in many countries will exceed GDP growth, due to the aging populations in many parts of the world and the ensuing need for health care. In addition, 3M’s safety and graphics business posted 3.8% sales growth through the first six months of the year.
These two businesses are providing 3M with the most growth this year, and that should continue into 2017 and beyond. Going forward, 3M expects health care revenue will grow 4%-6% per year through 2020, while safety and graphics sales are projected to increase 2%-5% annually through the end of the decade.
The other catalyst that will fuel future growth is 3M’s international expansion. The company is seeing particularly strong growth in Latin America and Canada, where local-currency sales increased 4.5% through the first half of the year. Another strong region is 3M’s Europe, Middle East, and Africa segment, where local-currency revenue rose 2.4% in the same time.
Because of its excellent brand strength and focus on investing in the most valuable opportunities, 3M is an excellent allocator of shareholder capital. For example, 3M generated a 22% return on invested capital in 2015, which allows it to return huge amounts of cash to shareholders.
Through 2020, 3M expects earnings will grow 8%-11% each year, thanks to these strategic initiatives. It also expects to generate at least 20% return on invested capital each year. The company will work towards these goals by pursuing efficient growth in a difficult global climate. 3M has a proven track record of effectively allocating capital.
3M Dividend Growth
One of the best things about 3M stock is the 3M dividend. The company currently pays $4.44 per share annually, which amounts to a 2.7% dividend yield. That is higher than the S&P 500, which yields 2% on average.
Even better, 3M has a long history of dividend growth like clockwork. In February, 3M raised its dividend by 8% and at the time also approved a new $10 billion share buyback authorization. The company has paid uninterrupted dividends for 99 years in a row, and it has raised its dividend for 58 years in a row.
As long as 3M can meet its earnings growth forecasts, it should have no trouble continuing to increase the 3M dividend for many years to come. With an above-average dividend yield and high-single digit dividend growth potential each year, 3M stock is an attractive pick for income investors.
— Bob Ciura[ad#wyatt-income]
Source: Wyatt Research