Dividend Increase | 3M Company (MMM)


Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks MMM for the dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On February 2nd the Board of Directors at 3M Company (MMM) approved an increase in the quarterly dividend payment from $1.47 up to $1.48.  That's a disappointing 0.7% raise. 3M is a Dividend Champion with 62 consecutive years of dividend growth.  Shares currently yield 3.29% based on the new annualized payout.
 

The new dividend will be payable March 12th to shareholders of record as of February 12th.

Since I own 39.547 shares of 3M in my FI Portfolio, this raise increased my forward 12-month dividends by $1.58.  This is the 7th dividend increase I've received from them after initiating a position in 2014.  Total dividend growth over that time is a solid 73%
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A full screen version of this chart can be found here.

3M's dividend growth record is one of the lengthiest active streaks which puts it in rare company.  This raise is obviously disappointing at just 0.7% especially on the heels of just a 2.1% raise last year.  I'm willing to give management time to work things out considering that 2020 was a completely bonkers year and that 3M's dividend growth has historically gone through periods of faster and then slower growth.

Dating back to 1977 there's been 44 year over year periods with 3M showing annual dividend growth ranging from 0.7% to 34.7% with an average of 8.1% and a median of 6.0%.

Over that same time there's been 40 rolling 5-year periods with 3M's annualized dividend growth ranging from 3.1% to 16.5% with an average of 7.7% and a median of 6.7%.

There's been 35 rolling 10-year periods since 1971 and 3M's annualized dividend growth over those periods has ranged from 4.4% to 10.9% with an average of 7.4% and a median of 7.6%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1977 can be found in the following chart.  



A full screen version of this chart can be found here.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

3M's 5-year average forward dividend yield is 2.89% which corresponds to a share price of $205 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $186 - $228 and suggests that 3M shares are trading below the lower end of the fair value range.
  




Wrap Up

This raise increased my forward dividends by $1.58 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my FI Portfolio's current yield of 2.42% this raise is like I invested an extra $65 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way. 

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

I've now received 7 raises from the companies in my FI Portfolio increasing my forward-12 month dividends by $64.90.

My FI Portfolio's forward-12 month dividends are $7,784.84  Including my FolioFirst portfolio's forward dividends of $107.77 brings my total taxable accounts dividends to $7,892.61.  My Roth IRA's forward 12-month dividends are $688.02.  My Rollover IRA's forward dividends are $3,424.93.  Across all accounts I can expect to receive $12,005.56 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  3M's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of 3M?  Do you expect 3M to show a rebound in dividend growth back to the 5-7% range over the long term?

Please share your thoughts below.

Comments

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