MMM vs HON: Dividend Comparison for Investors

MMM vs HON: Quick Overview

For decades, 3M Company (MMM) and Honeywell International Inc. (HON) have stood as titans of the American industrial sector. Both are sprawling conglomerates with a global reach, a history of innovation, and a long-standing commitment to rewarding shareholders with dividends. This has made them staples in many dividend-focused portfolios and frequent subjects of comparison.

However, the narrative surrounding these two giants has diverged significantly in recent years. Honeywell has continued its trajectory of steady operational performance and consistent dividend growth. 3M, on the other hand, has been navigating a perfect storm of slowing growth, massive legal liabilities, and a corporate restructuring that included the spinoff of its healthcare business, Solventum, and a subsequent, historic dividend cut. This has fundamentally changed the investment thesis for 3M, shifting it from a reliable dividend king to a potential turnaround story.

This article provides a detailed, head-to-head comparison of MMM and HON to help dividend investors understand their current standing, future prospects, and which might be a better fit for their investment strategy.

Company Profiles

While both operate under the "industrial conglomerate" umbrella, their specific business operations and end-market exposures differ.

3M Company (MMM)

3M is a company built on a culture of scientific innovation, famously encouraging its employees to dedicate 15% of their time to personal projects. This has resulted in over 60,000 products across numerous industries. Following the spinoff of its healthcare division, 3M now operates through three primary business segments:

• Safety & Industrial: This is its largest segment, providing a vast array of products including industrial adhesives, tapes, abrasives, personal protective equipment (like N95 respirators), and electrical products.
• Transportation & Electronics: This segment serves the automotive and electronics industries with products like specialty films, electronic components, and advanced materials for vehicles and devices.
• Consumer: This is the most publicly recognized segment, featuring iconic brands such as Post-it® Notes, Scotch® Tape, Command™ Strips, and Filtrete™ air filters.

3M's challenge lies in moving past its significant legal battles related to PFAS "forever chemicals" and its Combat Arms earplugs, which have created a massive financial overhang and damaged investor confidence.

Honeywell International Inc. (HON)

Honeywell is a technology-focused company that creates solutions for a wide range of industries, with a strong emphasis on aerospace, building automation, and performance materials. Its business is organized into four key segments:

• Aerospace: A dominant player in this market, Honeywell provides a massive portfolio of products and services for aircraft, including engines, avionics, and flight control systems for commercial, defense, and space applications.
• Honeywell Building Technologies (HBT): This segment focuses on making buildings smarter, safer, and more sustainable through products like fire safety systems, security systems, and advanced building management software.
• Performance Materials and Technologies (PMT): PMT develops and manufactures advanced materials, process technologies, and automation solutions. This includes products for the refining, petrochemical, and renewable energy industries.
• Safety and Productivity Solutions (SPS): This segment provides products that enhance workplace safety and efficiency, such as personal protective equipment, gas detection sensors, mobile computers, and warehouse automation solutions.

Honeywell's strategy is heavily geared towards high-growth trends like automation, the future of aviation, and the energy transition.

Dividend Comparison

For income investors, the dividend is paramount. Here’s how the two companies stack up on key dividend metrics following 3M's recent reset.

Current Dividend Yield

• MMM: After cutting its dividend post-spinoff, 3M's new annual payout is approximately $2.80 per share. With a stock price hovering around $102, this gives it a forward dividend yield of roughly 2.75%. This is significantly lower than its historical yield but is intended to be far more sustainable.
• HON: Honeywell's annual dividend is approximately $4.32 per share. With its stock price around $215, its forward dividend yield is about 2.0%.

Verdict: MMM still offers a higher starting yield, but the gap has narrowed considerably. Investors are no longer receiving a premium yield to compensate for the company's risks.

Dividend Growth Rate (DGR)

• MMM: 3M's dividend growth had been slowing for years, with its last few increases being merely symbolic. The 2024 dividend cut has resulted in a massively negative growth rate and ended its 64-year streak of consecutive increases, stripping it of its coveted "Dividend King" status.
• HON: Honeywell has a strong track record of dividend growth. Its 5-year dividend growth rate is typically in the high single digits (around 8-9%). The company has increased its dividend for over a decade and has demonstrated a clear commitment to consistent, meaningful raises.

Verdict: Honeywell is the clear winner. It offers reliable and robust dividend growth, which is a key component of long-term income compounding.

Payout Ratio

The payout ratio measures the proportion of earnings paid out as dividends. A lower ratio is generally safer.

• MMM: Before the cut, 3M's payout ratio was creeping into an unsustainable range (over 60% and higher when considering legal charges). The new, lower dividend is designed to bring the payout ratio to a much healthier level, estimated to be around 40% of adjusted free cash flow, providing ample coverage for the dividend and funding for litigation.
• HON: Honeywell has consistently maintained a conservative payout ratio, typically in the 40-50% range of its earnings. This leaves plenty of capital for reinvestment into the business, acquisitions, and future dividend increases.

Verdict: Both companies now target a healthy payout ratio. However, Honeywell's track record of maintaining this discipline is much longer and more proven than 3M's newly established policy.

Years of Consecutive Increases

• MMM: 0 years. The 2024 cut reset its streak from 64 years to zero.
• HON: 13+ years. Honeywell has a solid history of annual increases since the Great Financial Crisis.

Verdict: Honeywell easily wins on dividend reliability and consistency.

Financial Health

A stable dividend is only possible with strong underlying financials.

Revenue and Earnings Growth

• MMM: 3M has struggled with organic growth for several years. Revenue has been largely stagnant, and earnings have been severely impacted by restructuring costs and massive litigation accruals. The path to future growth relies on a more focused portfolio post-spinoff and successful innovation.
• HON: Honeywell has demonstrated more consistent top-line and bottom-line growth. Its exposure to strong end-markets like aerospace and warehouse automation has provided reliable tailwinds. Analysts generally project higher forward growth for Honeywell than for 3M.

Debt-to-Equity Ratio

Both companies utilize debt in their capital structure. A typical debt-to-equity ratio for a mature industrial company is around 1.0-1.5.

• MMM: 3M's debt levels have increased to manage its large liabilities. Its debt-to-equity ratio has often been above 2.0, reflecting a more leveraged balance sheet, though the company maintains investment-grade credit ratings.
• HON: Honeywell generally maintains a more conservative balance sheet, with a debt-to-equity ratio often closer to the 1.0-1.2 range, indicating lower financial risk.

Free Cash Flow (FCF)

FCF is the lifeblood of the dividend. It's the cash left over after all expenses and capital expenditures.

• MMM: FCF generation has been a historical strength for 3M. However, it will be significantly impacted by billions of dollars in cash outflows for legal settlements over the next decade. The new dividend is sized to be manageable even with these payments.
• HON: Honeywell is a powerful FCF generator, consistently converting a high percentage of its net income into cash. This strong and predictable cash flow comfortably funds its dividend, share buybacks, and growth initiatives.

Verdict: Honeywell exhibits superior financial health across growth, balance sheet strength, and FCF stability.

Valuation

Valuation metrics help determine if a stock's price is fair, cheap, or expensive.

P/E Ratio (Price-to-Earnings)

• MMM: 3M's trailing P/E ratio is often distorted by one-time legal charges, making it appear artificially high or even negative. Its forward P/E, based on analyst estimates of future earnings, typically trades at a discount to the market and to Honeywell, reflecting its higher risk and lower growth profile. A forward P/E in the 10-12x range is common.
• HON: As a higher-quality, higher-growth company, Honeywell commands a premium valuation. Its forward P/E ratio is typically in the 18-22x range, in line with other blue-chip industrial peers.

Price-to-Book (P/B) Ratio

• MMM: 3M's P/B ratio has compressed significantly due to its falling stock price and impairments to its book value. It often trades at a P/B of around 4.0x.
• HON: Honeywell's P/B ratio is generally higher, often in the 5.0-6.0x range, reflecting the market's higher valuation of its assets and earnings power.

Verdict: 3M is clearly the cheaper stock on a relative basis, but this discount exists for a reason. Honeywell is priced as a premium company, and investors must pay up for its quality and stability.

Which Is Better for Dividend Investors?

There is no single right answer; the choice depends entirely on your risk tolerance and investment goals.

The Case for 3M Company (MMM)

3M may be preferred by total return and value-oriented investors who are willing to take on significant risk. The investment thesis is no longer about safe, growing income. Instead, it's a turnaround play. If management can successfully navigate the litigation, stabilize the core business, and drive modest growth, the deeply discounted stock price could lead to substantial capital appreciation. The newly reset 2.75% yield offers a reasonable income stream while you wait for the story to play out. It's a bet on the recovery of a fallen giant.

The Case for Honeywell International (HON)

Honeywell is the clear choice for traditional dividend growth investors who prioritize safety, consistency, and a reliably increasing income stream. The company offers a lower starting yield, but its superior financial health, proven growth strategy, and conservative management provide a much higher degree of certainty that the dividend will not only be paid but will also be increased year after year. It's the quintessential "sleep well at night" industrial stock for an income portfolio.

Using a portfolio tracking tool like DripEdge can be invaluable here. You can simulate adding each stock to your portfolio to see how MMM's higher starting yield versus HON's superior growth rate would impact your projected passive income over the next several years.

Can You Own Both?

Yes, owning both can be a viable strategy. While they are both industrial conglomerates, their risk profiles and end-market exposures are different enough to offer diversification benefits.

• HON can serve as the stable, core industrial holding in a portfolio, providing reliable growth and income.
• MMM can act as a smaller, satellite position—a value-oriented, higher-risk bet on a turnaround.

This "core and explore" approach allows an investor to benefit from Honeywell's stability while participating in the potential upside of a 3M recovery, creating a balanced exposure to the industrial sector.

FAQ

Why did 3M (MMM) cut its dividend in 2024?

3M cut its dividend for three primary reasons. First, after spinning off its highly profitable healthcare business, Solventum (SOLV), its earnings and cash flow base was smaller. Second, the company needs to preserve cash to pay for massive legal settlements related to PFAS chemicals and its Combat Arms earplugs, estimated to be over $16 billion. Third, its previous dividend payout ratio was becoming unsustainably high, and the cut brought it to a much safer and more flexible level around 40% of expected cash flow.

Is Honeywell's (HON) dividend safe?

Yes, Honeywell's dividend is considered very safe. It is supported by a conservative payout ratio (typically 40-50% of earnings), strong and consistent free cash flow generation, a solid balance sheet, and a positive outlook for its key business segments like aerospace and automation. The company has a long-standing commitment to returning capital to shareholders, and its dividend is a top priority.

Which stock has better long-term growth potential?

Honeywell has demonstrated more consistent and reliable revenue and earnings growth, driven by its strategic positioning in high-growth markets. Its future growth appears more predictable. 3M's growth potential is less certain and is heavily dependent on a successful corporate turnaround. While a successful recovery could lead to a sharp rebound in its stock price (high potential reward), the risks are also significantly higher. For predictable business growth, HON is the stronger candidate.

Disclaimer: The information provided is for educational and informational purposes only and does not constitute financial, investment, or legal advice. DripEdge is not a registered investment advisor. Past performance does not guarantee future results. Always do your own research or consult a qualified financial professional before making investment decisions.