Updated on October 7th, 2022 by Nikolaos Sismanis
It is not an exaggeration to say that the Dividend Kings are dividend royalty.
To gain entrance to this exclusive club, companies must have at least 50 years of dividend growth. There are just 45 companies on the list. You can see all 45 Dividend Kings here.
You can also download an Excel spreadsheet with the full list of Dividend Kings (plus important metrics such as price-to-earnings ratios and dividend yields) by clicking on the link below:
Even among these dividend stalwarts, few can touch 3M Company’s (MMM) history of dividend growth.
The company has increased its dividend for more than six decades. 3M stock comes with a 5.2% yield as well as annual dividend increases like clockwork.
3M is truly a global company as it has operations in more than 70 countries and sells its products to customers in more than 200 countries.
The company’s portfolio includes more than 60,000 products that are used every day in homes, office buildings, schools, and hospitals, among other customers.
3M is now composed of four business segments:
- Safety & Industrial
- Transportation & Electronics
- Health Care
Each of these segments performed rather mixed in the second quarter as the company’s organic growth was mostly offset by a stronger dollar.
Source: Investor Presentation
3M reported second-quarter earnings results on Aug. 26th, 2022. Revenue declined by 2.8% to $8.7 billion but was in line with expectations.
Adjusted earnings-per-share of $2.48 compared to $2.59 in the prior year but was $0.04 above estimates.
Organic growth for the quarter was 1% as a stronger U.S. dollar offset gains, while adjusted free cash flow was $1.0 billion, down 41% year-on-year. Net debt remained relatively flat compared to the previous quarter, at $14.2 billion.
3M revised its guidance for the year, with earnings–per–share expected in a range of $10.30 to $10.80, down from $10.75 to $11.25 previously. Organic growth is projected to be 1.5% to 3.5% vs. 2% to 5% previously as well.
3M has grown earnings at a rate of 5.4% per year over the last decade. We are reaffirming our expected growth rate of 5% per year over the next five years.
3M has increased its dividend for the past 64 years, which shows that the company can thrive in a wide variety of economic environments. This is a solid track record, one made possible by the company’s long-term priorities.
As stated earlier, 3M has a massive portfolio of products that continues to grow each year with new patents.
3M also invests heavily in new products, spending upward of almost $2 billion on research and development annually.
This investment has fueled the company’s long-term growth.
Source: Investor Presentation
3M’s portfolio of products and innovation has allowed the company to raise its dividend each year.
The most recent increase of 0.7%, announced in February 2022, was a tiny increase and below the company’s historical average growth rate.
However, the company is still recovering from the pandemic-related economic downturn. The company maintains one of the longest dividend growth streaks in the stock market.
The most significant event that is currently before the company and could affect its earnings moving forward is that 3M is facing several lawsuits. These include nearly 300,000 claims that its earplugs used by U.S. combat troops and produced by a subsidiary were defective.
On July 26th, 2022, 3M announced that Aearo Technologies had filed for bankruptcy as it looks to conclude lawsuits related to its combat earplugs.
A settlement is expected to be reached soon.
Competitive Advantages & Recession Performance
Perhaps 3M’s most crucial competitive advantage is its innovation.
The company invests heavily in research and development. It’s even one of the relatively few companies that buy ideas from outsiders who have ideas on 3M’s patented products.
The company targets R&D spending equivalent to 6% of sales (~$2 billion annually) in order to create new products to meet consumer demand.
These investments have paid off handily for 3M, as it has more than 118,000 patents and receives roughly 4,000 new patents each year. Approximately 30% of sales during the last fiscal year were from products that didn’t exist five years ago.
Listed below are 3M’s adjusted earnings-per-share results before, during, and after the Great Recession:
- 2006 adjusted earnings-per-share: $5.06
- 2007 adjusted earnings-per-share: $5.60 (10.7% increase)
- 2008 adjusted earnings-per-share: $4.89 (12.7% decrease)
- 2009 adjusted earnings-per-share: $4.52 (7.6% decrease)
- 2010 adjusted earnings-per-share: $5.75 (27.2% increase)
- 2011 adjusted earnings-per-share: $5.96 (3.7% increase)
As an industrial company, 3M is not immune to the effects of a recession. As seen above, the company suffered earnings declines in both 2008 and 2009. EPS fell 19.3% from 2007 through 2009.
However, 3M quickly rebounded and made a new EPS high the very next year.
While it is very likely that 3M’s results will suffer a double-digit decline in the next recession, the company’s product offerings and innovation will likely lead to a rebound during the following recovery.
Valuation & Expected Returns
Shares of 3M recently traded at $113.60, undergoing a massive decline lately following the ongoing lawsuit, as stated earlier. Nevertheless, we expect that 3M will produce earnings-per-share of $10.55 for the year. This gives the stock a price-to-earnings ratio of 10.8.
We have a five-year target price-to-earnings ratio of 19 for the stock. If the P/E multiple rose from 10.8 to 19 over the next five years, valuation expansion would boost returns by 12% per year.
Given the company’s prospects for growth and competitive advantages, we forecast an earnings growth rate of 5% annually over the next five years.
3M stock currently offers a dividend yield of 5.2%, which is above its own 10-year average yield as well as the average yield of the S&P 500.
3M’s dividend payout ratio of 56% indicates a safe dividend, with room for continued increases each year.
Putting it all together, the combination of multiple expansions, earnings growth, and dividends could generate returns of 20.4% per year over the next five years.
This may seem like an overblown annualized return potential, and it is. However, as legal risks overshadow MMM’s financials, the current stock price levels could present a fantastic buying opportunity assuming any upcoming settlement doesn’t harm the company too much.
3M is currently facing significant headwinds, including a strong dollar and legal risks linked to the ongoing lawsuit.
Dividend increases have slowed down as the company preserves more cash flow for growth investment and upcoming settlements.
However, there is still a lot to like about 3M. The company spends heavily on R&D, which has allowed it to create numerous new products that add materially to its long-term growth.
And, 3M’s dividend track record is nearly unmatched, while the current 5.2% dividend yield is very attractive.
3M’s total projected returns could exceed 20% annually if the current lawsuit doesn’t annihilate its balance sheet. While risks persist, the stock is a buy in our view. We believe 3M has great potential as a long-term holding for income investors.
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The 2022 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The 2022 High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The 2022 Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks