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What 3M’s High Dividend Growth Means for Its Dividend Yield



3M’s dividend yield

Long-term investors will always give more preference to stocks that pay good dividend yields. A dividend yield is a measurement of the return that investors get for every dollar invested in a company’s equity.

As 3M (MMM) now maintains the dividend that it has paid in for the past two quarters, we can expect MMM’s fiscal 2017 dividend to be $4.70 per share. As of August 23, 2017, MMM’s dividend yield stood at 2.3%.

Since 2012, MMM’s dividend yield has largely remained in the range of 2.3%–2.9%. MMM has managed to maintain a good dividend yield by maintaining a higher dividend growth rate, though its stock price has more than doubled during this period.

Peers General Electric (GE), Honeywell (HON), and Stanley Black & Decker (SWK) have dividend yields of 3.9%, 2.0%, and ~1.7%, respectively. With 3M’s dividend yield at 2.3%, many investors may prefer the stock, as it is better than the yield of one-year Treasury notes.

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Dividend payout

At the end of 2Q17, 3M’s dividend payout stood at 49.5%—quite a high payout ratio, considering peer payouts. MMM’s dividend payout has increased substantially over the past five years. In 2012, its dividend payout stood at 37.3%, and by the end of 2016, it had moved up to 54.4% primarily due to its dividend growth outpacing its EPS (earnings per share) growth.

But while it can be good for investors, this higher payout might not be sustainable over the long run. It could also hamper 3M’s future growth.

Investors looking for exposure to 3M can invest in the Industrial Select Sector SPDR Fund ETF (XLI), which had invested 5.7% of its portfolio in MMM as of August 23, 2017.

In the next part, we’ll look into the analysts’ view of 3M.


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