3M -- the maker of the familiar Scotch tape and Post-It notes -- has operations in more than 65 countries. 3M is among the top 30 companies on the Dow Jones Industrial Average. The firm has paid dividends consistently for close to a century now. At around $141, shares are up a fraction for the year to date but up 19% for the past 52 weeks.
In addition, the company has steadily increased its dividend payout for 56 years in a row, an impressive achievement that places 3M among "aristocrats" such as Coca-Cola (KO) - Get Coca-Cola Company Report. 3M's dividend payout continues to rise with dividend yield in close proximity of the industry average. The yield has picked up in 2014 after experiencing a drop in the last fiscal year and has risen from 1.81% to 2.1%.
Analysts are anticipating the dividends to rise to 8.5% in the current fiscal year. Quarterly dividend of 85.5 cents per share has already been announced by the management this past May, an annual increase of 5% for full-year dividends.
Operational cash flow has been rising steadily primarily due to effective management of net working capital and a spike in net income. The company currently boasts a cash flow of about $6 billion.
3M dedicates approximately 30%-32% of its cash flow to dividend payments. In the 2013 fiscal, the company's dividend payouts stood at $1.76 billion, which is a 6% year over year increase. The conglomerate's sales netted the company $8.1 billion in the second quarter of the current fiscal, which is a profit of $1.27 billion, or $1.91 per share, up from $1.20 billion or $1.71 a share year over year. The company converted 103% of the $1.3 billion in net income to free cash flow during the quarter.
3M currently enjoys a low debt-to-equity ratio of 0.35, which represents a low risk profile when compared to the industry standard of 0.9. This also indicates that 3M is strategically prepared to manage interest changes for both long-term and current liabilities. The firm's current debt-to-equity ratio is 37.2% lower than the diversified machinery sector and approximately 51% lower than the industrial goods sector.
3M's Electronics and Energy revenue have jumped by 6.4%, which it makes it the most rapidly expanding sector within the corporation. The Health Care and Consumer segments have grown by 5.1% and 4.2%, respectively. Operating income grew collectively across the board by 5.8%.
The multinational is currently in the process of buying Sumitomo Electric's 25% stake in a joint venture in Japan for, reportedly, $885 million, in addition to paying cash dividends worth $556 million to shareholders in an effort to repurchase $1.4 billion of its own shares during the quarter.
The company's full year's earnings per share are expected to be $7.30-$7.55, with organic sales anticipated to improve by 3%-6%. The spike in cash flow and steadily decreasing debt-to-equity ratio observed during the past few years combined with its current bond rating of AA- suggest a strong return on investment and a good financial position. 3M is expected to yield better returns during the current fiscal.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates 3M CO as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate 3M CO (MMM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MMM's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 4.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.40, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.10, which illustrates the ability to avoid short-term cash problems.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Industrial Conglomerates industry and the overall market, 3M CO's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- The gross profit margin for 3M CO is rather high; currently it is at 52.96%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 15.57% is above that of the industry average.
- The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: MMM Ratings Report