What’s behind 3M’s Downward Sloping Dividend Yield Trajectory?
Revenue and EPS of 3M
3M (MMM) recorded net sales growth of close to -1% in 2016 compared to -5% in 2015. This was due to declines in all segments (industrial, safety and graphics, healthcare, electronics and energy, and consumer). The company began to see improvements in 4Q16, so the rate of decline fell.
The 3% revenue growth in 1H17 was driven by all the segments. The company’s EPS rose 8% in 2016 compared to 1.3% in 2015 due to lower operating costs offset by higher interest expenses. Share buybacks also played a role in enhancing the growth numbers. The company noted 15% EPS growth in 1H17 driven by lower operating costs and share buybacks offset by higher interest expenses. The company has maintained a good annual free cash flow balance.
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Dividend trajectory of 3M
3M’s dividend yield curve is sloping downward despite the increase in dividend per share. This trend is due to the company’s rising prices, which is offsetting the impact of dividend increases. 3M has a dividend yield of 2.2% and YTD price gains of 21.3%. This compares to a dividend yield of 2.3% and YTD price gains of 14.7% by the Dow Jones Industrial Average (DJIA-INDEX) (DIA). The S&P 500 (SPX-INDEX) (SPY) has a dividend yield of 2.4% and YTD price gains of 13.3%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has YTD price gains of 21.4%.
The FlexShares Quality Dividend Index Fund (QDF) is a dividend ETF with exposure to 3M. It has a dividend yield of 2.8% and a PE of 22.2x. The O’shares FTSE US Quality Dividend ETF (OUSA) is a dividend ETF with exposure to 3M. It has a dividend yield of 2.1% and a PE of 20.2x.