3M Increases Dividends but Some Remain Bearish
3M Company (NYSE: MMM) announced on December 16th that they will be increasing dividends by 20% and that they are on track to deliver long-term sales. The multinational conglomerate that sells a variety of Scotch Tape and Post-it Notes released this optimistic news a day after they announced plans to sell their Static Control business to Desco Industries, Inc.
In the December 16th press release, 3M stressed that “portfolio management, investing in innovation and business transformation” will continue to drive progress within the company. They reiterated their financial objections for 2013-2017, which include annually increasing earnings per share by 9%-11%; annually increasing organic sales by 4%-6%; receiving about 20% return on invested capital; and converting 100% of net income to free cash flow.
Investors have reason to be excited about the 20% dividend increase, marking an increase from $0.855 to $1.025. The new dividend will be payable to those who own 3M shares as of February 13th and will begin paying out on March 12th. 3M notes that dividend increases are a “hallmark” of the company, highlighting that “Next year marks 57 consecutive years of annual dividend increases, and 3M has paid dividends without interruption for 98 years.”
Despite the positive news, not all analysts are enthusiastic about 3M. On December 17th, analyst Deane Dray of RBC Capital reiterated an underperform rating with a price target of $155. Dray noted the “healthy 20% dividend boost.” However, the analyst is concerned about “the priced-for-perfection valuation against a short-cycle mix.” He continued, “MMM shares are trading at 19.4x 2015 EPS, a 21% relative P/E premium to peers and above the high-end of its (10%) to 15% historical relative P/E range.” He concluded that his “$155 price target assumes the shares trade at a 5% premium to our 18.0x target group multiple.”
Dray has rated 14 stocks this year with a 93% success rate. He has a +9.4% average return per recommendation.
Other analysts are more bullish on 3M. Andrew Obin, analyst for Merrill Lynch, assigned a Buy rating on the stock on December 17th with a price target of $190. Obin insists that bearish investors are “missing the improving returns story” at 3M. The analyst continued, “While management remains reluctant to commit to long-term margin improvement, 2015 guidance now explicitly indicates that margins will continue to go up as productivity is expected to outpace strategic investments.”
Obin has a 55% success rate recommending stocks with an average return of +4.1%.
The analyst consensus for 3M is Hold.