This stock has paid dividends for over 100 years and raised the rate of its dividend each of the past 60 years.
The company makes more than 60,000 items, including some of the most familiar household products on the market. It continues to add to its brands with well-focused acquisitions and research into new product development. A higher U.S. dollar cuts into the value of its extensive overseas operations. Nonetheless, the company projects a steady rise in sales and earnings over the next five years.
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3M COMPANY (New York symbol MMM; www.3m.com) started up in 1902 as the Minnesota Mining & Manufacturing Company.
While it started off making sandpaper and abrasives for industrial clients, it later developed other consumer and manufacturing-related goods. They included pressure-sensitive masking and packaging tape, audio-recording tape and reflective highway markings.
Today, 3M makes more than 60,000 items, including air purifiers, medical device components and bandages. Top-selling brands include Post-it notes, Scotch tape, Scotch-Brite cleaning products, Scotchguard protection and Thinsulate insulation.
The company’s new CEO, Mike Roman, plans to spur sales with acquisitions. 3M typically looks for smaller firms with attractive products and technology. That cuts the risk of using acquisitions to expand. At the same time, the company will continue to sell its less-profitable businesses.
3M is also spending more to develop new products. The company is especially interested in developing products that it can sell to multiple customers in a variety of industries. Those include Novec, a non-flammable, non-conductive liquid that can cool servers at data centres and batteries in electric cars.
3M’s sales rose 3.1%, from $30.9 billion in 2013 to $31.8 billion in 2014. However, unfavourable exchange rates cut its sales to $30.3 billion, and to $30.1 billion in 2016.
In October 2017, 3M paid $2.0 billion for Scott Safety, a North Carolina maker of safety devices and respiratory and protective equipment for firefighters, police and the military. Thanks to that purchase, the company’s sales rebounded to $31.7 billion in 2017.
3M’s overall earnings gained 20.6%, from $4.7 billion in 2013 to $5.6 billion in 2017. The company is an aggressive buyer of its own shares. As a result, its per-share earnings rose at a faster rate of 36.5%, from $6.72 to $9.17.
Blue Chip Stocks: Over $1.1 billion spent on share buybacks in the latest quarter
In the three months ended September 30, 2018, overall sales fell 0.2%, to $8.15 billion from $8.17 billion a year earlier. If you factor out currency rates and businesses that 3M bought and sold, sales improved 1.3% in the quarter.
Earnings rose 8.0%, to $1.5 billion from $1.4 billion. The company spent $1.1 billion on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share rose at a faster rate of 10.7%, to $2.58 from $2.33.
That earnings increase is mainly due to a $0.22-a-share benefit from lower U.S. tax rates. An ongoing plan to improve productivity added another $0.12 a share.
3M ended the quarter with cash of $3.5 billion, or $6.05 a share. Its long-term debt of $13.5 billion is a low 13% of its market cap.
The stock is down 25% from its all-time high of $260 in January 2018. That’s largely because the rising U.S. dollar hurts the contribution of its overseas operations, which supply 60% of its total sales. Trade tensions with China and other countries have also hurt 3M’s sales to automakers.
3M should benefit from a new computerized management system. That will help it track and analyze data on its raw materials, inventories and customer relationships. The system should cut $500 million to $700 million from its annual expenses, starting in 2020.
Starting with the March 2018 payment, 3M investors received a quarterly dividend of $1.36 a share, up 15.7% from $1.175. The new annual rate of $5.44 yields 2.9%. The company has paid dividends continuously for over 100 years and has increased that rate each year for the past 60 years.
Overall, 3M expects its annual sales (excluding currency rates) will rise 3% to 5% each year between 2019 and 2023. As well, earnings per share should rise 8% to 11% during that period.
For all of 2018, 3M expects to earn $9.90 to $10.00 a share. That’s down from its earlier range of $10.20 to $10.45 a share. The stock trades at 19.6 times the midpoint of its new range. That multiple is reasonable, as 3M continues to spend around 6% of its sales on research.
Recommendation in Wall Street Stock Forecaster: 3M is a buy.
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