I've had an on-again, off-again flirtation going on with Motley Fool Inside Value selection 3M (NYSE:MMM) for a few months now. But every time the company's shares drift down near the $70 level and I'm just about ready to pull the trigger, something happens that causes the shares to lurch upward.

That "something" happened again last night, when the company gave shareholders a valentine in the form of a 9.5% increase in its dividend and the authorization to repurchase up to $2 billion worth of its own shares over the next 12 months. The company's shares are reacting positively to the news, but what does it really mean to investors?

The $2 billion share repurchase would amount to approximately 3.5% of the diluted shares outstanding if executed at prices similar to today's share price of $73.70. Given share dilution caused by stock option issuances, it's more likely that the actual long-term effect to shareholders of the buyback will be somewhat closer to a 2% to 3% share count reduction. Still, that's a relatively large repurchase, considering that the company has reduced its diluted shares by 2.86% (approximately 0.57% per year) in the past five years.

The dividend hike of 9.5% to $0.46 per quarter and $1.84 per year is also a larger-than-normal jump for the company. The last six annual dividend increases have averaged 8.1%, with the last two increases before today's announcement coming in at 9.1% and 16.7%. One thing is certain: The dividend increases over the past few years are providing investors with a large stream of income to reinvest in more shares at a time when the company's stock valuation looks quite reasonable.

3M's shares have struggled since James McNerney stepped down as CEO to take the reins at Boeing (NYSE:BA). I don't know if the market is more concerned about 3M's future growth rate or the new CEO, George Buckley, being able to replicate his Brunswick (NYSE:BC) success at 3M. Looking at the other large Dow manufacturing companies such as General Electric (NYSE:GE) and United Technologies (NYSE:UTX), it's hard to call them or 3M expensive, but 3M may be the most undervalued of the group, and the share repurchases and dividend increase only make the investing case more interesting.

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Nathan Parmelee has no financial stake in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.