Stock Analysis Pollie-style – 3M – 2018
I’m always on the look out for some new potential companies to add to my Vrijheid Fonds. At the beginning of this month (May 2018), I had enough free cash to buy stocks. So I did a quick scan for possible candidates. I used the payout ratio, dividend yield and the DGR . I did this on a number of companies.
One company, who has been on my watch list for a number of years, is a Dividend Aristocrat with a high DGR. And this is what I like. Therefor I did a full analysis on this company.
This analysis is on the 3M company (MMM).
From google finance: 3M Company is a technology company. The Company operates through five segments. Its Industrial segment serves markets, such as automotive original equipment manufacturer and automotive aftermarket, electronics, appliance, paper and printing, packaging, food and beverage, and construction. Its Safety and Graphics segment serves markets for the safety, security and productivity of people, facilities and systems.
Its Health Care segment serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, health information systems, and food manufacturing and testing. Its Electronics and Energy segment serves customers in electronics and energy markets, including solutions for electronic devices; electrical products; telecommunications networks, and power generation and distribution.
Its Consumer segment serves markets that include consumer retail, office business-to-business, home improvement, drug and pharmacy retail, and other markets.
Can I explain this to a 10-year old? What Does This Company Do?
3M Company makes a lot of products. According to 3M, every 3 minutes a 3M product is sold in our world!! Probably the most famous and well-known product is the Post-it memo pads. But also in a lot of cars you can find 3M products.
Dividend Aristocrat: MMM is paying Dividend for 60 years in a row! And is a Dividend Champion. It is number 8 on the CCC-list form David Fish! They are a three star stock on Morningstar.com. That’s a Passed!
Dividend Yield > 2.5%:The dividend Yield of MMM is 2.5%. It’s above the industry average of 2.2% and a little bit higher than their 5 years average (2.28%). The yield meets exactly the requirements of the Pollie-Code, and therefore it passedthe second Pollie-code.
Dividend payout <70%:The dividend payout is roughly 59%. This is below the maximum ratio. This also means that they can keep those dividend increases coming for a long time. Great! That’s what we DGI’s want. So also passedfor this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 en 10 years are 5.9, 11.2, 14.8 and 9.4. With a 3 years DGR of around 11%. It is way above the requirements of the Pollie-code, so it is a pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. MMM has a current P/E ratio of 24. The industry average is 20. The P/E ratio is higher that its 5-years average (21.8). It is above the requirements of the Pollie-code, therefore it is afail.
EPS > 0: The EPS is 7.99. So MMM also passedthe sixth Pollie-Code
ROE > 10%:Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.The current ROE is 47.4%. This is way above the requirement of the Pollie-Code. Therefore it is a Pass.
Market Cap. > 100M:No problem at this point. More than 117.209 $Mil. Another pass.
Chowder Rule > 12:Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 17.6. So MMM also passedthe ninth Pollie-code.
Stock price 52wk high-25%:The 52 wk high and low are: 258.27 and 185.65. This means that MMM will be in my buying zone when the stock price is below 240.12 ((258.27-185.65)*0.75 + 185.65). At this moment MMM is trading for $195. This is below my buying zone. Therefore it is a passon the Pollie-Code.
Beta:I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for MMM is 0.40.
Debt/Equity ratio: The Debt/Equity ratio of MMM is around 1.04. This is a little bit high. But MMM generates almost $5 billion in annual free cash flow, and it should not have problems repaying its debt obligations.
When I look at the analysis, MMM passed 9 out of 10 from the Pollie-code. The Pollie-code only failed at the P/E ratio.
MMM is a well-run business. It has industry-leading margins and productivity. Yes, 3M Company isn’t a cheap stock, but quality rarely comes cheap.
Considering all the data MMM would be a great addition to my Vrijheid Fonds. And with the recent price drop, it looks very attractive 🙂
What are you – the readers, thoughts on 3M Company? Is it a buy? Do you own it?
Please comment on my analysis and thanks for stopping by!
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