Guest Post: 3M’s Dividend and the Two Years Its Accounts Told Opposite Stories 

By Philip van den Berge, Founder and CEO, Intrinsiqq 

3M is the kind of share income investors are supposed to be able to hold without thinking about it. A diversified industrial, a household name, and one of the longest unbroken dividend records on the US market. 

Then it cut the dividend. What makes 3M worth studying is not that the cut happened, but that the warning arrived in one set of numbers a full year before it arrived in the other, and the numbers most income investors watch were the ones that arrived late. 

Here are the last five years. Figures are as shown on Intrinsiqq, computed from 3M’s own annual reports. Free cash flow is operating cash flow less capital expenditure. 

Two years, two opposite signals

 
Read 2023 on its own and 3M looks like a catastrophe. The company reported a net loss of $7.0bn, so earnings cover does not compute. Any screen filtering on payout ratio would have thrown the share out on the spot. 

Yet the cash was fine. Free cash flow was $5.07bn against $3.31bn of dividends, cover of 1.53x, better than the year before. 

Now read 2024. Net income is back to $4.17bn and earnings cover is 2.11x, one of the healthiest readings in the table. An investor checking the usual number would have concluded the trouble had passed. 

It had not. Free cash flow collapsed to $0.64bn against $1.98bn of dividends. Cover of 0.32x. The company paid out roughly three times the cash it generated. 

Why the signals inverted

 
Because the loss and the payment happened in different years. 

3M’s 2023 loss was driven by charges for legal settlements. Under accrual accounting a settlement is recognized as an expense when the obligation becomes probable and estimable, which is when it hits the income statement. The money leaves the business later, on the settlement schedule, which is when it hits the cash flow statement. 

So 2023 shows the accounting recognition and 2024 shows the cash going out of the door. One event, two years, two very different-looking sets of accounts. Neither is wrong. They are answering different questions, and an income investor’s question is the cash one. 
 

The cut, and what came after

 
Dividends paid fell from $3.31bn in 2023 to $1.98bn in 2024 and $1.56bn in 2025. Part of that is the Solventum spin-off resetting the base, and part is a genuine reduction, but either way the cash going to shareholders is now less than half what it was. 

Here is the part that gets missed. Even after the reset, 2025 free cash flow cover is 0.89x. The dividend still is not fully covered by the cash the business produces, on a payout that has already been cut. Meanwhile earnings cover reads a comfortable 2.08x, and the gap between those two numbers is the whole point of this article. You can follow both series on 3M’s dividend page. 
 

Is that a reason to avoid it?

 
Not on its own, and I hold no view on whether the shares are cheap. 

A company can run below 1.0x cover for a while quite deliberately. 3M has been paying down a defined, disclosed legal liability rather than losing money on its operations. Revenue has been broadly stable at around $25bn throughout. When the settlement payments run off, the cash flow statement should look considerably better, and capital expenditure has already been cut back from $1.6bn to under $1bn, which flatters free cash flow in the short run and is worth watching. 
 
That is a legitimate investment case. It is just a different one from “3M is a dividend aristocrat with 2.1x cover,” which is what the headline ratio tells you. 
 

The general lesson

If you hold individual shares for income, the discipline this case argues for is straightforward. Check cover on cash rather than earnings, read at least five years rather than one, and when the two measures disagree, ask which one the timing difference explains. In 3M’s case a single event produced a terrifying earnings number in one year and a terrifying cash number in the next, and an investor watching only one of them got the wrong answer both times. If it helps, I have set out the fuller checklist for judging whether a dividend is safe. 

One footnote for UK holders: dividends from US-listed shares carry American withholding tax even inside an ISA, so the income arriving in your account is lower than the quoted yield. Worth confirming with your provider what you have on file. 

Disclosure: I have no position in 3M. 

Philip van den Berge is the founder and CEO of Intrinsiqq, which computes company fundamentals directly from SEC filings. Every figure in this article is the one shown on Intrinsiqq and traces back to 3M’s annual reports.

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