Key Takeaways:
- 3M slashed its dividend, but the stock offers better value even for dividend investors.
- The company is refocusing its business and freeing up cash flow, which could strengthen its financial position.
- While the dividend payout is lower, it’s more sustainable and has room for growth over time.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
Last year, 3M (MMM) did something nearly unthinkable when it reduced its dividend. The company has paid dividends for over a century and had grown dividend payments to shareholders for over 60 consecutive years.
But let’s be honest: the writing was on the wall. The company was seeing declining cash flows, and the dividend wasn’t sustainable. The dividend cut was the reset 3M needed to increase cash flow and become a stronger business going forward.
Today, it looks like 3M could be a good dividend stock for the long term.
Why Has 3M’s Stock Dropped?
3M’s stock has underperformed over the past few years due to legal liabilities, industrial slowdown, and a need to refocus its business.
The company faced massive settlements tied to PFAS chemical pollution and military earplug lawsuits, which ended up costing billions and creating years of uncertainty.
However, in April of 2024, 3M spun off its healthcare division, Solventum, and finalized major legal deals.
With those issues largely behind it, the company is now focused on rebuilding investor trust and sharpening its industrial core.
1: Dividend Yield
Even with the dividend cut, 3M still offers a 2.7% dividend yield today, which is higher than the average stock in the S&P 500.
The difference is that now the dividend yield is much more sustainable.
Sometimes, a really high dividend yield can be a red flag for a stock if the company doesn’t have strong earnings to back the dividend payments.
That’s why the new dividend level actually gives 3M breathing room and is better for dividend investors.
Find high-yield dividend stocks today that are even better than 3M >>>
2: Dividend Safety
3M had seen earnings and cash flow decline for years before the dividend was cut.
Now, the company’s dividends are much more in line with what the company can afford based on its earnings.
We like to see stocks with a payout ratio of less than 70%. In the most recent quarter, the stock had a payout ratio of about 54%, which means that 3M safely passes now.
3M is also working to improve its balance sheet. By managing its liabilities and spinning off healthcare, it’s aiming for a cleaner business with better cash flow.
Analyze stocks like 3M quicker with TIKR >>>
3: Dividend Growth Potential
3M was once a poster child for dividend growth with 60 consecutive years of dividend increases. Analysts expect the stock to return to dividend growth after this dividend reset.
If management can execute on the turnaround plan and cash flow improves, analysts expect that the dividend will start to grow again in the future.
Access up to 5 years of analyst forecasts for 3M on TIKR >>>
TIKR Takeaway
3M isn’t the dividend darling it once was, but with a more sustainable payout and a turnaround plan in place, it may quietly be turning into a long-term opportunity for patient income investors.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
