I've had an on-again, off-again flirtation going on with Motley Fool Inside Value selection 3M
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
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