It’s not usually on this column that we come throughout a dividend that appears very protected primarily based on the Security Internet mannequin however really has some vital issues.
However that’s the case with 3M Firm (NYSE: MMM).
Boasting over 68,000 patents, 3M makes 1000’s of merchandise in 25 classes, resembling energy cable connectors, labels and lubricants.
Earlier than we get to my issues, let’s talk about the corporate’s financials and why the dividend is rated so extremely.
Free money move rose considerably from $3.8 billion in 2022 to $5.1 billion final yr, although it’s nonetheless under 2020 and 2021 ranges of $6.6 billion and $5.8 billion, respectively.
Of its $5.1 billion in free money move final yr, 3M paid out $3.3 billion in dividends for a 66% payout ratio. This yr, free money move is forecast to rise to $5.3 billion and the full dividends paid ought to improve by roughly $100 million, which might drop the payout ratio to 65%.
3M has additionally raised its dividend yearly since 1958.
Since Main League Baseball’s Opening Day is tomorrow, let’s put that right into a baseball perspective. In 1958, the Yankees – led by Yogi Berra and Mickey Mantle – surged again from a 3-1 deficit to defeat Hank Aaron’s Milwaukee Braves in seven video games and win their 18th World Collection title.
So the corporate has a stellar dividend-raising monitor report, to not point out a powerful yield of 5.8% at present costs.
Trying on the financials, 3M can simply afford that dividend…
Or can it?
There are a few points that decision the dividend into query.
3M is spinning off its healthcare division, Solventum, this coming Monday. Solventum was accountable for $1.4 billion of 3M’s free money move final yr, or 28% of the full.
Simply as regarding for dividend traders is the information that 3M has settled two massive lawsuits that may value it billions of {dollars}.
Over the following 5 years, 3M pays $6 billion to plaintiffs for promoting defective earplugs to the U.S. army. It has additionally agreed to pay greater than $10 billion for polluting ingesting water with what are generally known as “eternally chemical compounds.” These are man-made chemical compounds that don’t degrade.
Administration has made it clear that it desires to maintain paying an “engaging” dividend, however at this level, it’s unknown how the spinoff and settlements will have an effect on the corporate’s means to pay shareholders down the street.
That is an uncommon state of affairs. Based mostly on 3M’s financials alone, I’d give its dividend an “A.” However I merely can’t belief it that a lot with all of the regarding information surrounding the corporate.
Dividend Security Score: C
In case you have a inventory whose dividend security you’d like us to research, depart the ticker image within the feedback part under.
You may also have a look to see whether or not we’ve written about your favourite inventory not too long ago. Simply click on on the phrase “Search” on the high proper a part of the Rich Retirement homepage, kind within the firm title and hit “Enter.”
Additionally, remember the fact that Security Internet can analyze solely particular person shares, not exchange-traded funds, mutual funds or closed-end funds.