Dividend Increase | 3M Company (MMM) $MMM #Dividend

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks MMM for another 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 8th the Board of Directors at 3M Company (MMM) approved an increase in the quarterly dividend payment.  The dividend was increased from $1.48 to $1.49 which is an anemic 0.7% increase.  3M Company is a Dividend King with 64 consecutive years of dividend growth.  Shares currently yield 3.73% based on the new annualized payout.

The new dividend will be payable March 12th to shareholders of record as of February 18th.

Since I own 40.588 shares of 3M in my FI Portfolio, this raise increased my forward 12-month dividends by $1.62.  This is the 8th raise that I've received from 3M since initiating a position in 2014.  Total organic dividend growth over that time is 74.3%.

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

3M has long been a favorite for dividend growth investors and for good reason.  Dividend raises have plentiful and at an adequate growth rate for decades.

Dating back to 1977 year over year dividend growth has ranged from 0.7% to 34.7% with an average of 7.9% and a median of 5.9%.

There's been 41 rolling 5-year periods over that time with annualized dividend growth ranging from 3.1% to 16.5% with an average of 7.6% and a median of 6.3%.

3M has also shown 36 rolling 10-year periods since 1977 with annualized dividend growth ranging from 4.4% to 10.9% with an average of 7.5% and a median of 7.6%.

The 1-, 3-, 5-, and 10-year rolling dividend growth rates for 3M Company 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 3-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 3-year average forward dividend yield is 3.38% which corresponds to a share price of $176 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 3-year moving average yield +/- 10%.  That gives a fair value range of $160 - $195 and suggests that shares are trading on the lower end of the fair value range.

Another quick and dirty valuation method is the Gordon Growth or Dividend Discount model.  This valuation method is based solely off the expected future dividends as well as your required return.  Based on a 10% discount rate and assuming 3M Company can maintain 6.0% annual dividend growth shares are worth around $158 per share.

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

However, reducing the estimated growth rate to just 5.0% lowers the fair value to $125.

Wrap Up

This raise increased my forward dividends by $1.62 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 2.36% this raise is like I invested an extra $69 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way. 

I am considering closing my position in 3M, but for now it remains in the portfolio and continues to pay out dividends.  The reason I'm considering is because I believe the potential lawsuit liabilities will continue to be an anchor on dividend growth.  That being said I need to do more research to figure out how exactly the potential liabilities could possibly be offloaded such that the rest of 3M does not continue to be weighed down by that burden.

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.

This is the 6th dividend increase I've received from the companies in my FI Portfolio increasing by forward 12-month dividends by $55.25 combined.

My FI Portfolio's forward-12 month dividends are $9,683.28  Including my FolioFirst portfolio's forward dividends of $178.87 brings my total taxable accounts dividends to $9,862.15.  My Roth IRA's forward 12-month dividends are $932.04.  My Rollover IRA's forward dividends are $4,047.59.  Across all accounts I can expect to receive $14,841.78 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 Company'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 Company? Do you think the lawsuits will continue to be a drag on dividend growth moving forward?

Please share your thoughts below.