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52 Week Highs On A Dividend Cut – EPS Beat Helps On A Day Of Surprises

Analyst Team trader
Updated 1 May 2024

3M shares (NYSE: MMM) had a good day of trading on Tuesday, ending up 4.72%. The earnings report was positive from a growth perspective, with both sales and revenue beating expectations, but a surprising announcement of a forthcoming reduction in its dividend has also done nothing to stem the tide of positivity. Why the dividend cut, and why no fallout?

This strategic dividend move comes in the wake of the spinoff of 3M's healthcare business, now operating as Solventum Corp. The spinoff was of course already known, and the logic behind basing future dividends on free cash flow are not negative as far as corporate health. The EPS beat was also substantial, with the $2.39 delivered significantly outpacing the consensus expectation of $1.96.

Solventum shares (NYSE:SOLV) did not fare so well in yesterdays' session, dropping 1.37% to bring total losses since the spinoff to 18.74%, and this may tell an additional part of the 3M growth story. With 3M having added 12.47% since the Solventum shares hit markets, against the backdrop of the formers losses, it is clear to see which part of the former singular business is being favoured at this time.

Going back to 3M, the dividend announcement marks a notable transition for the firm, traditionally recognized for its robust shareholder returns. However, 3M's action aligns with recent adjustments within its operational structure, aimed at streamlining its business and enhancing focus on core growth areas. Despite the cut, investors' response indicates confidence in the company's enduring value proposition and future prospects.

This business reorganization surfaces amidst a broader economic climate where the hope for Federal Reserve rate cuts has receded significantly since the dawn of 2024. This withdrawal has significantly impacted treasury yields, which have seen a notable upwards trajectory as expectations stabilize.

Analysts remain unmoved in the early hours after earnings and the call, with the current price still very much in the range.

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The AskTraders Analyst Team features experts in technical and fundamental analysis, as well as traders specializing in stocks, forex, and cryptocurrency.