3M Co. (MMM:US), a maker of goods from electronics to dental braces, jumped the most in almost two years after increasing its quarterly dividend by 35 percent and signaling plans to spend more to spur growth.
The new dividend (MMM:US) will be 85.5 cents a share, and will be payable March 12 to shareholders of record as of Feb. 14, the company said today in a statement. 3M said it will spend up to $10 billion on acquisitions through 2017 and repurchase as much as $22 billion of shares in the five-year period.
Chief Executive Officer Inge Thulin said the plan “reflects our confidence in 3M’s future.” The spending 3M outlined through 2017 could reach $34 billion, outpacing an estimated $25 billion of free cash flow over the period and indicating about $10 billion of new debt, said Nigel Coe, a Morgan Stanley analyst in New York.
“This represents a major shift in tone from this historically conservative team,” Coe, who has an underweight rating on the stock, wrote in a note today. The “eye-popping” dividend increase is a “positive move that signals confidence.”
The shares rose (MMM:US) 2.9 percent to $131.39 at the close in New York, the biggest one-day increase since Dec. 20, 2011. 3M climbed 42 percent this year compared with a 25 percent gain for the Standard & Poor’s 500 Index.
Since taking over at 3M in February 2012, Thulin has increased spending on research and development, realigned business units and begun shedding underperforming businesses. Thulin said today he’s planning on “more aggressive capital deployment” to drive growth. 3M said in the statement that multibillion-dollar transactions are “possible.”
“We are ready to move a little bit more aggressively,” Thulin said at a meeting with investors today. The company is looking to add technologies and to expand its “push-forward businesses” such as oral care and air and water filtration, he said.
3M may add $2 billion to $4 billion of debt (MMM:US) in 2014 linked to the higher spending plan, according to a slide presentation. The company will maintain “capital structure flexibility” to respond quickly to large acquisition opportunities, according to the presentation.
Moody’s Investors Service said 3M’s plan to increase debt is a negative. Moody’s rates 3M as Aa2, the third-highest investment grade rating. 3M’s rating and stable outlook “are not in jeopardy at this time” because the company has “meaningful cushion” within its credit-rating category, Moody’s said in a statement today.
Standard & Poor’s called the strategy shift a “negative rating factor,” while affirming its AA- rating and stable outlook.
3M today also forecast earnings per share next year will be $7.30 to $7.55. Analysts projected that the St. Paul, Minnesota-based company would post adjusted 2014 earnings of $7.40 a share, according to the average of 17 estimates compiled by Bloomberg. A declining impact from pensions will boost earnings per share as much as 20 cents, while share repurchases of up to $5 billion may add 30 cents and higher efficiency may contribute up to 20 cents, 3M said.
The company reiterated its goal of earnings per share growth of as much as 11 percent for the five-year period ending 2017. Sales growth excluding acquisitions is expected to average 4 percent to 6 percent annually, according to the statement.
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