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3M: Investors’ Fourth-Quarter Dividend

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3M’s fourth-quarter dividend

In a press release on November 13, 3M (MMM) announced the key dates for the fourth-quarter dividend. Investors who hold 3M stock as of the close on November 23 in the company’s record will be eligible for the dividend. The dividend will be paid on outstanding common shares. According to 3M, the company has ~582.28 million outstanding shares. Assuming that no share buyback takes place, 3M would be paying $791.90 million in the form of dividends. 3M is expected to pay the dividend on December 12.

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On a sequential basis, 3M maintained the dividend rate of $1.36 per share. On a year-over-year basis, the dividend represents an increase of 15.7%. 3M’s peers Stanley Black & Decker (SWK), Caterpillar (CAT), and Honeywell (HON) have a dividend growth of ~4.8%, 10.25%, and 10%, respectively. 3M has outpaced its peers regarding the dividend growth. In the past six years, 3M’s dividend has grown at a compound annual growth rate of 14.9%. With such a high dividend growth rate, can 3M’s free cash flow support the growth?

3M’s free cash flow

In the first three quarters of 2018, 3M has generated a free cash flow of $3.1 billion. For fiscal 2018, the free cash flow is expected to be $4.8 billion–$5.2 billion. Between 2012 and 2017, 3M’s average free cash flow was $4.6 billion. On average, 3M has used ~49% of its free cash flow to pay dividends, which leaves more than 50% of its free cash flow to be used for other activities like share buybacks and debt repayment. 3M’s free cash flows support the strong dividend growth.

Investors could hold 3M indirectly by investing in the Industrial Select Sector SPDR Fund (XLI). XLI has invested 5.6% of its portfolio in 3M.

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