3M Firm (NYSE: MMM) has one of the crucial spectacular dividend-raising histories within the inventory market.
In February, the corporate raised its quarterly dividend by a Casadefinance Reader per share to $1.50, giving the inventory a 5.6% yield. 3M has paid a dividend for greater than 100 years and has raised it yearly for an unbelievable 65 years.
There’s little doubt that 3M has weathered loads of storms in its time. However can it stand up to its newest troubles and hold its dividend intact?
Let’s have a look.
The corporate, which makes every thing from medical laboratory provides to Submit-it notes, generates billions in free money circulation. However final yr, free money circulation declined considerably, repeating 2021’s efficiency of decrease money circulation. Falling free money circulation is a pink flag for the Security Web system.
This yr, free money circulation is forecast to rebound however nonetheless be under 2021’s stage. In truth, if the 2023 projection is correct, free money circulation will likely be on the lowest stage since 2013 (apart from final yr).
As a result of free money circulation has been falling and the corporate lifts its dividend yearly, final yr’s payout ratio was too excessive. In 2022, 3M paid out 88% of its free money circulation in dividends.
My threshold is 75%. I prefer to have a buffer in case free money circulation falls in order that the dividend received’t be in jeopardy.
This yr, if the $4.5 billion in free money circulation is appropriate, the payout ratio is anticipated to be 75.6%, only a hair above my restrict. Ought to dividends paid be larger than predicted or free money circulation be decrease, the payout ratio will likely be larger.
In fact, the other is true too. So if 3M places in a greater efficiency than anticipated, the inventory may get an improve subsequent yr based mostly on the payout ratio.
3M Dividend Ranking
The Security Web rankings mannequin is quantitative. What just isn’t factored into the grade are two main lawsuits by which 3M is the defendant. In a single, the corporate is being accused of offering defective listening to safety tools to the U.S. army. The opposite lawsuit is in regards to the firm’s function in producing what are often called “endlessly chemical substances” (human-made chemical substances that don’t seem in nature and don’t degrade).
3M might be on the hook for tens of billions of {dollars} in damages if the circumstances go in opposition to it. And it doesn’t have the money to pay these sorts of numbers.
3M at the moment has $3.9 billion in money with greater than $14 billion in long-term debt. So a detrimental end in these lawsuits may hamper the corporate’s capacity to pay its dividend.
Once more, the authorized proceedings aren’t factored into the Security Web score, however they’re an added variable that might negatively have an effect on the dividend.
Primarily based on simply money circulation and the payout ratio, the dividend appears unsafe. I’m not assured that 3M could make it 66 or 67 years in a row.
Dividend Security Ranking: D
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