Dividend King – 3M

The 3M Company is one of the world’s most successful companies. It was founded in 1902 and was initially known as the Minnesota Mining and Manufacturing Company. The company has been operational for over 100 years and is consistently profitable. Its success is driven by its ability to combine technology with an endless array of real-world customer needs. It was founded on the principle of finding new ways to make everyday products better. This philosophy has led 3M to develop some of the most popular products in the world, such as Post-it notes and Scotch tape.

In addition to its focus on product innovation, 3M excels at customer service. The company works hard to ensure that its products are of the highest quality and meet customers’ needs.
3M’s commitment to innovation and customer satisfaction has made it one of the most successful companies in the world.

Business Model

The company operates in four segments: Safety & Industrial, Transportation & Electronics, Health Care, and Consumer.
3M’s Safety & Industrial segment accounts for 34.3% of total sales. This comprises items and services that aid in worker safety, productivity, and industrial process safety management. An example of a product provided within this segment includes “Scotch-Brite Abrasive” which polishes metal hardware.
3M’s Industrial & Transportation segment represents 26.0% of sales. This includes products and services that help increase productivity in transportation, logistics, and service industries and improve the efficiency of manufacturing operations worldwide. An example of a product sold by this segment is “3M Nextel”, a ceramic fiber used for manufacturing vehicles.
3M’s Health Care segment represents 24.1% of the company’s total sales. This segment provides products and services for the healthcare industry, including surgical and infection prevention solutions, medical tapes and dressings, stethoscopes, and patient monitoring systems. The company’s strong presence in the healthcare industry has helped it weather the COVID-19 pandemic better than most of its peers. An example of a product sold within this segment is “3M clarity aligners” which dentists use for various dental procedures.
3M’s final segment is Consumers, representing 15.6% of sales. The segment includes product categories such as stationery, office supplies, and home improvement. 3M’s consumer products are some of the most recognizable brands in the world, including Post-It notes, Scotch tape, and Command adhesive hooks.

The Consumer segment is vital to 3M because it provides a steadier revenue stream than other segments. In addition, Consumer products tend to be less expensive to manufacture than different types of 3M products.

Dividend Profile

3M has a long history of delivering shareholder value through dividends and share repurchases.

The company’s stock has a current dividend yield of 2.4% and a payout ratio of 58%.

Since 2011, 3M’s dividend per share has been increasing at a CAGR of 10.41%. In total, 3M has increased its dividend for 64 consecutive years, making it a Dividend Aristocrats — a group of companies that have increased their dividend for at least 25 consecutive years.

In addition to increasing its dividend, 3M has also been an active repurchaser of its shares.

Since 2011, 3M has repurchased 129.5 million of its outstanding shares.

Business Risk

The pandemic led to a decrease in demand for 3M’s products. As a result, the company has seen a decline in sales of its products used in the construction, automotive, and electronics industries, especially in China.

The company’s supply chain has also been disrupted due to the closure of factories in China. As a result, 3M is currently suffering from a decline in revenue and increasing overhead costs – It is still up in the air when the world’s supply chain will be back to pre-pandemic levels.

In addition, 3M has been embroiled in several lawsuits in the past few years. One of the most severe lawsuits stems from its earplugs business. 3M acquired the protective equipment maker, Aearo, in 2008 and has since been facing litigation alleging that the company knew about a design flaw in the earplugs but failed to warn its customers. Through its Aearo subsidiary, it had accruals of more than $1 billion in product liabilities and defense costs.

In 2022, 3M announced the initiation of Chapter 11 proceedings for Aearo Technologies and related units.

Apart from the Aearo-related litigation, 3M is also now entangled in other environmental-related lawsuits, which, although still ongoing, has thrown a shadow over the company’s otherwise exemplary reputation.

Final Thoughts

3M Company is an American multinational conglomerate with a long history of paying and increasing dividends. The company has over 60,000 products under several brands, operates in more than 70 countries, and serves customers in nearly 200 countries, allowing them to generate a lot of cash flow.

These factors make 3M an outstanding dividend stock to own, so while some short-term risks may be associated with investing in 3M, the long-term prospects remain positive

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