3M’s second-quarter dividend
3M (MMM) announced the key dates for its second-quarter dividend on May 8. Investors on record as of May 18, 2018, will be eligible for the dividend. 3M’s ex-dividend date is May 17. The dividend will be paid to shareholders on June 12. At the end of the first quarter, 3M had 612.7 million outstanding shares. Assuming that 3M doesn’t buy back any shares until the record date, it would pay ~$833.30 million in dividends in the second quarter. In the second quarter of 2017, 3M paid a dividend of $701 million.
3M declared a cash dividend of $1.36 per share, representing growth of 15.7% year-over-year. Peers General Electric (GE), Deere (DE), and Caterpillar (CAT) have declared or paid a dividend of $0.12, $0.6, and $0.78, respectively, for the second quarter. 3M has been increasing its dividend every year. Since 2012, 3M’s dividend has grown at a CAGR (or compound annual growth rate) of 14.9%. Let’s look at whether 3M’s substantial dividend growth is sustainable or not.
Free cash flows
Dividends are usually paid out of free cash flows. Based on data from the past six years, MMM’s free cash flow has been very strong. The dividends paid to shareholders fall in the range of 41% to 51% of the free cash flows generated with the exception of 2017, when dividends constituted 64% of free cash flows. These metrics indicate that 3M’s dividend growth is sustainable as long as MMM continues its free cash flow growth.
Investors looking for exposure to 3M could invest in the Industrial Select Sector SPDR ETF (XLI). XLI invests 5.3% of its portfolio in 3M as of May 15.