Stop in any Silicon Valley cafe, where a small latte goes for 10 bucks these days, and you’ll hear “innovation” bandied about in the same breath as artificial intelligence, machine learning or earthquake insurance.
But in the high-tech capital of the planet, few may realize that the mighty fortress known as Google borrowed one of its key innovation concepts from an old-school Midwestern company that, for most of its existence, had the word “mining” in its moniker (and we don’t mean “data mining,” either).
To wit: The tinkering time offered by Google (ticker: GOOG, GOOGL) to its employees — known as “20 percent time” and adopted by many high-techs — owes its very existence to the creator of decidedly low-tech products such as Scotch Tape and Post-it Notes.
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That’s right: 3M Co. (ticker: MMM) made innovation a sensation with its “15 percent rule,” and its workforce has turned creative daydreaming into product-line, bottom-line reality. To date, the Minnesota-based company has more than 100,000 patents: twice as many as Google.
Yet here’s the rub. Innovation, even if it produces products consumers can’t live without, doesn’t automatically mean a trip to the Wall Street winner’s circle. For while it would be next to impossible to wrest Google from its search engine throne, or Facebook ( FB) from it social media dominance, any plugger can put out his own line of tape, sticky notes and fabric guard.
For the last 12 months, 3M stock has stayed ramrod straight, trading at about $207 per share. This year has been less kind; after peaking on Jan. 26, shares are off more than 20 percent.
The recent drubbing, though, largely reflects a one-time settlement in February of $850 million for one albatross of a lawsuit. For eight years, 3M was locked in a legal battle with the state of Minnesota for allegedly releasing PFCs (used in non-stick cookware) into state groundwater.
Expensive as the payout was, it averted a jury trial that could have crippled the company financially (to the tune of $5 billion) and image-wise. As any aficionado of office supply doodads will tell you, 3M is a pretty easy company to love.
And taking the long financial view, 3M has climbed 85 percent over the last five years. Meanwhile, its dividend gives investors cause for some chest puffing, too.
With 59 consecutive years of increases, 3M began rocking right around the time Elvis did. Speaking of The King, 3M is one of those rare dividend kings to top the half-century mark. Right now that A-list stands at 20 companies. Among them: Coca-Cola Co. ( KO), Colgate-Palmolive Co. ( CL), Genuine Parts Co. ( GPC), Lowe’s Companies ( LOW) and Tootsie Roll Industries ( TR).
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“These companies have streaks that are the corporate equivalent of Cal Ripken’s 2131 consecutive games-played streak in Major League Baseball,” says Robert Johnson, principal at the Fed Policy Investment Research Group, in Charlottesville, Virginia.
Nor was 3M’s increase for 2018 some token stab at preserving the record. “3M surprised analysts by raising the dividend 16 percent this year,” Johnson says. “Most analysts had anticipated a more modest single-digit dividend increase.”
Right now 3M investors enjoy an annualized payout of $5.44 ($1.36 per quarter) and a yield of 2.63 percent. For those who wish the stock would get up to similar speed, good news could be just around the bend.
“What particularly bodes well for 3M is a directional change in leadership,” says Anne Drougas, chair of the Brennan School of Business’ accounting, finance and entrepreneurship department at Dominican University in suburban Chicago.
That leader, slated to take the company reins in July, is Michael Roman. A 30-year 3M veteran with a background in electrical engineering, Roman’s undoubtedly done his share of desk doodling in accordance with the 15 percent rule. If he continues to tinker in his corner office, many expect good things. Roman knows and gets the company culture that drives its success.
“Roman represents the tie that binds 3M’s past core competencies with a plan to grow internationally and innovate 3M’s product line,” Drougas says. “And by divesting itself of assets in favor of innovative products aligned with growing industries — such as electric cars and respiratory health — 3M seems poised to remain a reliable source of dividends.”
Expect it to stay in the hunt as a healthy company, too.
“It is an enormous responsibility to manage the breadth and depth of products that add up to more than $32 billion in annual sales,” says Mike Sedlak, founder and managing member of Golden Trail Advisers in Burr Ridge, Illinois.
“Over the long run, the company has handled this very successfully,” Sedlak adds. “Like any business that stands the test of time, it must continue to reinvent itself and tackle issues that arise along the way.”
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Naturally, one of those issues will center on imitation of 3M’s inimitable product line. But in the case of one imitator — Google, that is — 3M can consider it the sincerest form of flattery.
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What Makes 3M Dividends Stick? originally appeared on usnews.com
