3M is one of the oldest companies trading on the New York Stock Exchange today. Founded in 1902, the industrials conglomerate is a Dividend King, with 63 unbroken years of dividend increases.
Its global footprint is vast, selling around 60,000 products all across the world, and a patents portfolio totaling 100,000, with an average of 3,000 patents being added every year.
MMM Stock Split and Dividend History
Given the age of the company, it might not come as a shock to many people to learn that the firm has initiated a full ten stock splits over the course of its history. The first was a 2 for 1 split in 1920, with a further nine between 1922 and 2003. Not all splits were the same though; in 1951, the company performed a 4 for 1 split, and in 1960 a 3 for 1 split.
Besides its many stock splits, 3M is perhaps most esteemed among investors as being a highly reliable and profitable dividend stock. The company increased its dividend payout for the last 63 years, putting it 8th in the list of all-time Dividend Kings.
MMM pays an annual dividend of $5.92, distributed in four installments across the year. At its current stock price, this gives it a dividend yield of 2.92%.
And although the firm’s yield isn’t as high as some other Dividend Kings – such as Pfizer’s 3.9%, for instance – the company can boast strong cash flows and robust operating margins that will help the business maintain and grow its dividend payout over the coming years, as well as allocate capital for share repurchases and R&D activities.
Revenues were fairly distributed across all of 3M’s segments in the first quarter of 2021, suggesting the business isn’t suffering from any standout weaknesses or potential failure points.
Of its four business groups, it was the Transportation & Electronics and Safety & Industrial wings that did the best, with sales growth above 13% for each. That said, Consumer and Health Care also clocked-up pretty impressive increases of 9.8% and 6.8% respectively.
3M has also been pursuing a sensible strategic policy of divesting from markets that have been severely challenged by COVID-19 headwinds, and instead focused on more lucrative sectors which are showing strong trends in profitability, sustainability and productivity.
To this end the company has been liaising directly with national governments on readiness for the re-emergence of another future pandemic, with the firm reporting a year-on-year rise on sales of respirator-related products of roughly $190M.
Overall, the company had a very good Q1, with a beat on both revenue and EPS. Total sales grew 9.6% from $8.08B in 2020 to $8.85 in 2021, and gross profit increased 9.1% to $4.33B.
Operating income also grew 19.9% during the quarter, as did net income which was up 24.2% at $1.62B.
Earnings per share of $2.77 beat analyst predictions by $0.48, and represented an increase of 23.1% on Q1 2020 numbers.
Particularly good news came by way of 3M’s revenue figures, which were the highest they’d been for the past 12 quarters at $8.85B. And, not surprisingly for a 119-year-old Dividend King company, the firm also increased its free cash flow by 49%, bringing in a total of $1.4B.
Perhaps the standout statistic for 3M this year has been its gross profit margin of 48.7%. Given that the median for this metric in the industrials sector is 29.0%, the company appears to be outperforming its competition by quite some way.
Couple this with a levered year-on-year FCF growth of 52.0% – versus its rival’s 22.5% – and the business starts to look like it’s very much the dominant player in the space.
The strong start to 2021 is expected to continue over the coming quarters, but the firm has issued a note of caution. Recognizing that the global recovery from the coronavirus pandemic is still evolving and subject to vaccination roll-outs and lock-down lifting, the company has warned that uncertainties surrounding issues such as supply chain disruptions and logistics/materials headwinds can’t be overlooked.
However, 3M’s management remains optimistic that an earnings per share in the range of $9.20 to $9.70 is achievable by the close of the year. And it seems Wall Street agrees too; 100% of analysts have raised their estimates in the last 90 days, and now predict a consensus EPS estimate of $9.85.
Is MMM Undervalued?
While 3M’s stock value fell around March 2020 with the onset of the crisis, the company regained its price to close almost exactly as it was the previous January. However, 2021 has been a different tale altogether; so far, MMM is up 16%, and has been trending positively for the entire year except for a small retrace in mid-June.
But is the stock trading at a good price now for investors?
Looking at its forward price-to sales ratio of 3.37, the answer to that question that be a “no”. Other businesses in the sector average out a sales multiple of 1.58 – which hints at MMM being slightly overpriced at the moment.
However, going off a 2025 EPS prediction of $13.50, and maintaining its current P/E of around 21, this would give the company a valuation of about $283.5. Taking 3M’s present share price of $203, this would yield a compound annual growth rate of ~8.7%.
A CAGR of just under 9% for a company in an industry not known for high growth rates would certainly please many investors. And with a dividend reputation almost unparalleled anywhere on the market today, 3M should offer good value and growth for most investors out there.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.