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Industrials

Could 3M Dare Trump GE on Dividend Hikes?

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By Jon C. Ogg Published
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3M Co. (NYSE: MMM) has enjoyed a wonderful 2013, as has General Electric Co. (NYSE: GE). GE’s stock is up almost 29% so far in 2013 versus a gain of 38% for 3M. We are waiting for a dividend hike from GE in the next two weeks, but after taking a look at the conglomerate universe it seems as though 3M should consider prematurely taking the thunder of a dividend hike. The reality is that this is setting up a show down for 2014 for both conglomerates.

Investors have some considerations to make soon. First is that 3M was recently removed from the prized High Quality & Dividend Yield Screen conducted by Merrill Lynch. The reason: 3M yields less than the average of the S&P 500 common dividend on average now. A recent Morgan Stanley downgrade down to Underweight whacked 3M over the Thanksgiving week, sending shares from about $134 down to about $125 on Tuesday.

Still, 3M yields about 2% for new investors who want to buy the stock. GE has a 2.8% yield now that its shares have risen this year. The $2.54 annualized payout as of now from 3M is only about 38% of expected 2013 operating earnings and about 34% of expected 2014 operating earnings. GE’s $0.76 current dividend on an annualized basis represents close to 46% of expected 2013 earnings and about 43% of expected 2014 operating earnings.

The 3M board of directors approved an 8% dividend increase this last February over the dividend paid in 2012. The current rate of $0.635 per share per quarter is what gets the yield only to 2% and it was worse before the Morgan Stanley downgrade took the steam away from 3M.

Will 3M likely do this maneuver? Almost certainly not. What 24/7 Wall St. wants its readers to understand is that GE has a dividend hike almost certainly being announced within the next two weeks. 3M’s dividend hike is likely to be in two months. There are several other considerations to make here:

  • GE trades at about 16.2-times expected 2013 earnings versus about 18.6-times for 3M.
  • GE is soon to be spinning off the majority of its consumer finance operations so it can be valued as an industrial conglomerate.
  • GE has more than 8% implied upside to its consensus analyst price target over the next 12-month period versus 1.4% implied upside for 3M, and 3M was above that price target before the Morgan Stanley downgrade.
  • GE is worth $267 billion in market cap versus just over $84 billion for 3M.

Stay tuned. These dividend hikes are coming, even if patience is a virtue that is hard to find these days.

Photo of Jon C. Ogg
About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.

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