3M Company Stock Analysis Pollie-style for February 2020
I already own this company in my Vrijheid Fonds. And I want to try to make a new analysis of all my shares every year, and it has been almost 2 years since I looked into 3M. oops, so it is time to dive into this great company again.
For my analysis I use a lot of data from the Internet and from the company itself. But most data I get from the famous CCC-list, which was created by David Fish and is now maintained by Justin Law.
This analysis is on the 3M company (MMM).
Founded in 1902, the company now operates across four business segments: Safety and Industrial, Transportation and Electronics, Healthcare, Consumer. The company employs over 90,000 people across the world, focusing on applying science across 12 areas of expertise: Automotive; Design & Construction; Manufacturing; Commercial Solutions; Electronics, Mining, Oil & Gas; Communications; Energy; Safety; Consumer; Healthcare; and Transportation. It is safe to say that 3M is a diversified, global, powerhouse of an industrial firm.
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. And if you watch the news with the Corona virus you see a lot of people wearing mouth masks. 3M is producing a lot of these.
Dividend Aristocrat: MMM is paying Dividend for 61 years in a row! And is a Dividend Champion, actually they are Dividend Kings!. It is number 8 on the CCC-list form David Fish! That’s a Pass!
Dividend Yield > 2.5%: The dividend Yield of MMM is 3.69%. It’s above the industry average of 2.01% and higher than their 5 years average (2.58%). The yield meets exactly the requirements of the Pollie-Code, and therefore it passed the second Pollie-code.
Dividend payout <70%: The dividend payout is roughly 69%. 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 passed for this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 en 10 years are 5.9, 9.1, 11.0 and 10.9. 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 18.98. The industry average is 22.02. The P/E ratio is lower than its 5-years average (23.7). It is above the requirements of the Pollie-code; therefore, it is a fail.
EPS > 0: The EPS is 8.36. So MMM also passed the 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 49.1%. 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 91.470 $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 14.6. So MMM also passed the ninth Pollie-code.
Stock price 52wk high-25%: The 52 wk high and low are: 212.06 and 147.92. This means that MMM will be in my buying zone when the stock price is below 196.03 ((212.06-147.92)*0.75 + 147.92). At this moment MMM is trading for $157. This is below my buying zone. Therefore it is a pass on the Pollie-Code.
Other Key Figures
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 1.14.
Debt/Equity ratio: The Debt/Equity ratio of MMM is around 1.83. This is a little bit high. But MMM generates almost $5.3 billion in annual free cash flow, and it should not have problems repaying its debt obligations.
Net debt/Ebitda: The net debt to EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant. If a company has more cash than debt, the ratio can be negative. This metric tells something about the health of the company. I like to see ratios below 3 and will be ecstatic with ratios below 1. The Net Debt/EBITDA ratio of MMM is around 2.96. This is on the high side, but still under my max.
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. It’s positioned well to continue delivering higher profits and dividends for years to come. With more than 60 consecutive years of dividend raises, and long-term double-digit dividend growth, I think is a perfect example were short-term volatility has led to a long-term opportunity.
If I look at this analysis, I’m still happy to be an owner of this company 😁. A P/E ratio below 15 would be even better 😆. But with today’s stock prices it may present a buying opportunity for income investors. I will definitely leave MMM on my watch list for some extra stocks in the near future. I love good quality stocks with a nice dividend yield and a good DGR.
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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