This Dividend King Proves Its Resilience Again and Again

The past year has been great for the U.S. stock market, as measured by the performance of the S&P 500 Index. But not all major S&P 500 components have shared in the strong returns of the broader index. For example, while the S&P 500 Index is up around 7.5% in the past 12 months, shares of industrial giant 3M Co. have declined more than 15% in the same time. 3M has been among the hardest-hit industrial manufacturers from the ongoing trade conflict with China and the impact of a slowing global economy. However, 3M has proven its resilience with strong second-quarter earnings. The company handily beat analyst expectations, showing that it has multiple growth catalysts intact. Plus, 3M has a long history of increased dividends. It is a Dividend Aristocrat and a Dividend King, having raised its dividend for 60 years in a row. Earnings Roundup 3M is a global industrial manufacturer, with its 60,000 products used every day in homes, hospitals, office buildings and schools around the world in more than 200 countries. 3M trades with a market capitalization of around $100 billion, and generates $33 billion in annual sales. As of the second quarter of 2019, 3M is now composed of four separate divisions. The Safety & Industrial division produces tapes, abrasives, adhesives and supply chain management software as well as manufactures personal protective gear and security products. The Health Care segment supplies medical and surgical products as well as drug delivery systems. Transportation & Electronics division produces fibers and circuits with a goal of using renewable energy sources while reducing costs. The Consumer division sells office supplies, home improvement products, protective materials and stationary supplies. 3M released financial results for the second quarter on July 25. Adjusted earnings-per-share for the quarter was $2.20, which topped estimates by $0.13, but declined 28% year over year. Earnings per share was reduced by $0.72 due to litigation-related charges. Revenues decreased 2.6% to $8.2 billion, but managed to beat estimates by $70 million. Organic growth slowed by just 0.9%. Overall, investors breathed a sigh of relief that the company was able to surpass analyst expectations for the quarter, showing that business conditions are not as bad as feared. 3M is grappling with a number of headwinds, specifically the global economic slowdown brought on by trade conflicts. By region, only the U.S. showed growth last quarter. The Europe/Middle East/Africa region led to the downside with a 9.4% drop in revenues. The Safety & Industrial segment declined 9% as higher demand for roofing granules and personal safety products were offset by declining sales in adhesives, electrical markets, abrasives and automotive aftermarket. Transportation & Electronics revenues were down 2.9% as gains made in materials and transportation safety were not enough to make up for declines in electronics, commercial solutions and aerospace. Consumer sales dropped 0.5% for the quarter. Fortunately, 3M still has a strong growth tailwind in the form of its Health Care segment. The lone segment to show growth during the quarter was Health Hare, which grew sales by 6% for the most recent quarter. 3M is seeing growth across a number of product categories, such as health information systems, medical solutions, food safety, and oral care. Sales increased in all geographic regions for this division. The global economic slowdown, brought on by the trade conflict between the U.S. and major trading partners such as China and Mexico, is likely temporary. 3M has a dominant position in the emerging markets, including China, while its Health Care segment is booming. Health care sales should only increase going forward, as the U.S. is an aging population which means demand for 3M's health care products should only grow. 3M reiterated that it expects to earn between $9.25 and $9.75 per share in 2019. Cost cuts will help 3M meet earnings guidance this year. The company announced last quarter that it would cut 2,000 jobs in a restructuring that will help save the company at least $225 million in annual costs. Why 3M Is a Blue-Chip Dividend Stock Income investors looking for a reliable dividend stock that pays its dividend, no matter what condition the economy is in, should look no further than 3M. The company has paid dividends to shareholders for over a century, and has increased its payout for the past 60 consecutive years. This places it in truly elite company. 3M is a member of the Dividend Aristocrats, a group of stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. Not only that, it is also a member of the Dividend Kings -- a truly exclusive group of less than 30 stocks with 50+ consecutive years of dividend increases. With a long dividend history, and an attractive 3.4% yield, 3M is a blue-chip dividend stock. Investors can feel confident that this company will continue to increase its dividend each year going forward, even in a recession. Thanks to 3M's global scale, dominant industry position, and durable competitive advantages, 3M was able to continue raining its dividend during the Great Recession of 2007-2009. Over a 60-year period, 3M has successfully raised its dividend each year despite global recessions, geopolitical conflicts and wars, period of inflationary pressures, and many other challenges. Even in what will likely be a difficult year for 2019, 3M will still generate more than enough profit to maintain its dividend. The company has a projected dividend payout ratio of approximately 60% for 2019. This leaves enough financial cushion to keep paying its dividend, and also continue to raise it. 3M hiked its dividend by 6% in early 2019, and will likely raise the dividend again in early 2020. Final Thoughts 3M has shown itself to be a very stable company, having increased its dividend for six decades. The current yield is also near a decade high. Though 3M is seeing various macro-economic challenges, it has proven a unique ability to sail through downturns while continuing to reward shareholders with steady dividend hikes. Investors with a long-term horizon, especially those looking for income from the industrial sector, should consider purchasing the stock.

This Dividend King Proves Its Resilience Again and Again

Looking for a reliable dividend stock that pays no matter what condition the economy is in? Look no further than this industrial giant.

Columnist Conversation

Strength in Semis and Banks

Dual Dividend Gift

Added Some Peleton

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.