Is 3M Stock A Buy In May 2019?

Industrial manufacturer 3M Company (MMM) is one of the notable stock market laggards of 2019, as it has declined 12% year-to-date. It has significantly underperformed the S&P 500 Index, which has gained 14% so far this year.

3M has underperformed the broader market by a wide margin, despite the fact that it has a long history of increasing its dividend. 3M is not only a Dividend Aristocrat—a group of 57 S&P 500 stocks with 25+ years of consecutive dividend growth—it is a Dividend King as well.

The Dividend Kings are an even more exclusive group of just 24 stocks that have increased their dividends for an amazing 50+ years in a row.

The downloadable Dividend Kings Spreadsheet List below contains the following for each stock in the index, among other important investing metrics:

  • Payout ratio
  • Dividend yield
  • Price-to-earnings ratio

3M is off to a poor start to 2019, having recently cut its sales and earnings guidance for the rest of the year. In addition, rising litigation expenses are lingering headwinds that could continue to impact the stock.

At the same time, 3M is a high-quality business with a long history of dividend growth. Its attractive dividend yield of 3.5% and investments in strategic growth areas could provide a quick turnaround for this time-tested dividend growth stock. This could make 3M a stock to buy in May 2019.

Business Overview

3M is a diversified global manufacturer, which sells more than 60,000 products that are used every day in homes, hospitals, office buildings and schools around the world. 3M is composed of several separate divisions. The Industrial segment produces tapes, abrasives, adhesives, and supply chain management software and solutions, while Safety & Graphics manufactures personal protective gear and security products.

Its Healthcare segment supplies medical and surgical products as well as drug delivery systems. 3M’s Electronic & Energy division produces fibers and circuits with a goal of using renewable energy sources while reducing costs. Lastly, the Consumer division sells office supplies, home improvement products, protective materials, and stationery supplies.

Business conditions remained strong through 2018. 3M posted strong financial results for the fourth quarter, as adjusted earnings-per-share increased 10%, due in part to a solid 3% organic revenue growth rate. For the year, adjusted EPS increased 14% to $10.46. Organic revenue growth increased 3.2%, while share repurchases fueled additional EPS growth. 3M returned $4.9 billion to shareholders in 2018 in the form of share buybacks.

(Click on image to enlarge)

MMM Summary

Source: Investor Presentation

3M performed well last year, but things suddenly changed for the worst to start 2019. 3M released weak first-quarter results and significantly reduced its full-year outlook. Revenue declined 5% to $7.9 billion, which was $162 million below expectations.

On the positive side, Health Care segment sales increased 0.7% for the quarter, and Consumer sales grew 0.9%. But these results were more than offset by declines elsewhere. Safety & Graphics revenue fell 0.1%, Industrial sales dropped 2.8%, and Electronics & Energy sales declined 3%.

(Click on image to enlarge)

MMM Q1

Source: Investor Presentation

Making matters worse, 3M’s first-quarter EPS was reduced by $0.72 due to litigation-related charges. The company is involved in a number of legal proceedings, which represent a significant headline risk. 3M incurred a total litigation-related pre-tax charge of $548 million in the first quarter, and its elevated litigation expense is a dark cloud over the stock right now. While it is likely 3M is strong enough to withstand the litigation risk, investors should pay close attention to the company’s future results to make sure the situation does not worsen moving forward.

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Disclaimer: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities. However, the publishers of Sure ...

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