3M Stock Is Higher Despite Its Dividend Cut. Here's Why
3M is snapping its decades-long streak of dividend hikes, yet it's been one of the best Dow Jones stocks this week. Here's what you need to know.
3M (MMM) stock gained nearly 5% Tuesday and is up another 3% Wednesday, making one of the best-performing best Dow Jones stocks so far this week. The upside comes as the Post-It note maker's first-quarter earnings and revenue beat offset news that MMM is cutting its dividend, putting an end to its six-decade streak of increases.
In the three months ended March 31, 3M said revenue increased 0.5% year-over-year to $7.7 billion and earnings per share (EPS) were up 21.3% to $2.39.
The results exceeded analysts' expectations for revenue of $7.1 billion and EPS of $1.96, according to Yahoo Finance.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The quarterly results were the last for outgoing CEO Mike Roman. In March, the company announced Roman will be replaced on May 1 by former L3Harris Technologies (LHX) CEO William Brown. Roman will become executive chairman of 3M's board.
3M cuts its dividend
On April 1, 3M completed the spinoff of its healthcare business, Solventum (SOLV). The company retains a 19.9% ownership stake the new business, which it will monetize over the next five years. However, as a result of the spinoff, 3M said it will reset its dividend payout ratio to approximately 40% of adjusted free cash flow. This will result in a cut to its shareholder payout.
The dividend cut had been anticipated by many firms, including CFRA Research.
"Despite the expected cash infusion from the Solventum spinoff, we believe that 3M is likely to cut its dividend over the next 12 months," said CFRA Research analyst Jonathan Sakraida in an April 16 research note. In addition, the company is facing upcoming litigation payouts related to "forever chemicals."
Investors will find out how deep the dividend cut will be next month, but speculation is already swirling.
"3M generally converts 100% of reported earnings to free cash flow," wrote Al Root, senior writer at Barron's, in an April 30 article. "That implies 2024 free cash flow, after the Solventum spin, of roughly $4 billion. Doing the math, 40% of that total is about $1.6 billion, or roughly $2.85 a share."
An annual dividend of $2.85 per share would be a 52.8% reduction from 3M's current annual rate of $6.04 per share.
Unfortunately, the dividend cut puts 3M at risk of losing its status as a Dividend Aristocrat, the best dividend stocks in the S&P 500 that have consistently raised their annual payouts for 25 straight years.
According to 3M, it has raised its annual dividend for 64 consecutive years and has paid a dividend for the past 100.
Where does 3M stand with analysts?
Analysts are mixed on the multinational conglomerate. According to S&P Global Market Intelligence, the consensus analyst target price for the blue chip stock is $101.24, representing implied upside of just nearly 2% to current levels. Additionally, the consensus recommendation is a Hold.
Argus Research analyst John Eade is one of those with a Hold rating on 3M stock. "The company is now taking aggressive steps to engineer an earnings and stock price turnaround," Eade says, including bringing on a new CEO and cutting its dividend to conserve cash. These are all good things, but "we expect that a return to industry leadership will take time and will look for top-line progress as a potential buying signal," he adds.
Related Content
-
6 Champagne Problems Successful Retirees FaceWhat do you do if your biggest financial threat is simply having too much of a good thing — money?
-
Congress is Set for a Busy WinterThe Kiplinger Letter The Letter editors review the bills Congress will decide on this year. The government funding bill is paramount, but other issues vie for lawmakers’ attention.
-
A Portfolio Checklist If You're Planning to Retire in 2027Are you planning on retiring in 2027? This portfolio checklist will help put you on the right path.
-
A Portfolio Checklist If You're Planning to Retire in 2027
Are you planning on retiring in 2027? This portfolio checklist will help put you on the right path.
-
How to Avoid Being Buried by the Tax Avalanche in Retirement: Tips From a Wealth AdviserAll that cash you have in tax-deferred accounts could launch you into a higher tax bracket when you start withdrawals. It's time to protect your income.
-
I'm a Financial Adviser: This Is the Real Secret to Retirement SuccessFor real retirement security, forget about chasing returns and focus instead on the things you can control: income, taxes, risk-taking and decision-making.
-
Is Your Retirement Plan Based on Social Security Fact or Fiction?One in two Americans don't know much about Social Security — and some are basing their retirement on mistaken beliefs. It's time to separate fact from fiction.
-
Are You Investing to Score Points or Make Money? Cautionary Tales From an Investment AdviserHave you become numb to risk? Is your brokerage app or website fueling your desire to trade? An investment adviser explains why it always pays to be cautious.
-
Are You Overlooking These 5 Investment Opportunities in 2026?As investors game-plan for the year ahead, these five areas of the equity markets deserve their attention.
-
Are Roth Conversions for Retirees Dead in 2026 Because of the New Tax Law?The OBBBA's permanent lower tax rates removed the urgency for Roth conversions. Retirees thinking of stopping or blindly continuing them should do this instead.
-
Worried About Retirement? 4 Tasks to Calm Your Nerves and Build Confidence, From a Retirement ProIf you're feeling shaky about your finances as you approach retirement, here are four tasks to complete that will help you focus and steady your nerves.
