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Racing To Dividends With 3M Company


Diversification plays a key role in risk management for an investment plan and when running a company.

2016 will represent 100 years of uninterrupted dividends and 58 consecutive years of dividend growth.

3M Company is extremely high quality, unfortunately shares are overvalued by at least 15%.

Shares are currently trading around $178 per share giving investors a current yield of 2.49%.

Diversification plays a key role in risk management for any investment plan as well as for running a company. If a company relies on income from just one segment of the economy, the economic cycles are felt especially hard in the bad times.

3M Company (NYSE:MMM) is a one-stop shop for diversification with 5 business segments that range across the economy: Industrial, Safety and Graphics, Health Care, Electronics and Energy, and the Consumer. 3M Company also gives global diversification, with 60% of 2015's sales being derived internationally.

The geographic and product diversification allows different segments of the business to zig when others zag. In other words, the business can continue to march forward more often than not even if some of the segments are going through a rough period.

Periodically, I like to re-analyze the companies that I own to update the valuation in order to determine if now is the time to make bolt on purchases.

How about that dividend?

As a dividend growth investor, one of the first things I examine is whether a company has consistently paid and grown the dividend payout. You'd be hard pressed to find many companies with a better track record than 3M.

Assuming the two remaining 2016 dividend payments are made, 2016 will mark a huge milestone for 3M. This will be the 58th consecutive year of dividend increases and also marks the 100th consecutive year of uninterrupted dividend payments. That firmly gives it the title of Dividend Champion.

Its streak is so impressive that there are only 7 companies on the U.S. stock market that have a longer streak of rising dividends. To say that 3M has shareholder friendly management would be an understatement.

The following chart shows the quarterly dividend payment from 3M Company since 1993.

Some companies can amass a lengthy dividend growth streak by just slowly inching their dividend higher year after year; however, 3M is not one of those. Over the last 10 years, the quarterly payout has increased by 141%. The following chart shows the 1-year, 3-year, 5-year and 10-year dividend growth rates from 2002 through 2016.

Year-to-year dividend growth has fluctuated wildly ranging from just 2.0% in 2009 all the way up to 34.6% in 2014. Looking at dividend growth over longer time periods smooths out the annual variations in dividend growth.

Not all of the dividend growth has come from growth in the underlying company, rather a rising payout ratio explains the huge jump in dividend growth in 2014 and 2015.

3M Company has clearly been a shareholder friendly company with a long history of both paying and growing its dividend. The lengthy dividend growth streak is impressive, but the most promising part is that the underlying company has been growing along with it. This has...