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3M Company (NYSE:MMM) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase 3M's shares before the 18th of May in order to receive the dividend, which the company will pay on the 12th of June.
The company's next dividend payment will be US$1.50 per share. Last year, in total, the company distributed US$6.00 to shareholders. Last year's total dividend payments show that 3M has a trailing yield of 6.0% on the current share price of $100.27. If you buy this business for its dividend, you should have an idea of whether 3M's dividend is reliable and sustainable. So we need to investigate whether 3M can afford its dividend, and if the dividend could grow.
View our latest analysis for 3M
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. 3M is paying out an acceptable 61% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether 3M generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (82%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that 3M's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at 3M, with earnings per share up 4.0% on average over the last five years. A payout ratio of 61% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.