MMM Stock Evaluation

 

The market has taken quite a tumble at the start of the year.  Some of these foundation stocks can now be had at GREAT prices.  If the market continues to drop, the prices might even get better! The purpose of this section is to alleviate some stress of a dropping market.  We know that these 5 companies have stood the test of time and continue to pay out an increasing dividend.  In times like this, getting a couple bucks in dividend payouts is all some need to maintain a positive attitude about investing.  Stick to the plan and enjoy buying stocks that are "on sale" 🙂

If you missed the first four articles here are the links -

JNJ Stock Evaluation

AFL Stock Evaluation

GPC Stock Evaluation

TGT Stock Evaluation

For your ongoing reference, I will continue to list the criteria the stocks need to meet to qualify.  Remember, we are not looking for the highest dividend or the highest potential for growth, we are looking for stocks that we can buy, sit around on our asses, and enjoy steady and increasing dividend checks without causing ourselves too much stress.

MARKET CAP> 2 BILLIONDIVIDEND HISTORY>20 YEARS
P/E RATIO< 20DIVIDEND INCREASES1,3,5 YEAR AVG ALL OVER 5%
CURRENT EPS>3PAYOUT RATIO<70% FOR LAST 5 YEARS
EPS GROWTH ESTIMATE>3%

And with that, stock #5...

3M-Co-MMM-stock

 

Description From Google Finance:

3M Company is a diversified technology company. The Company operates in five business segments: Industrial, which serves a range of markets, such as automotive original equipment manufacturer (OEM) and automotive aftermarket, electronics, appliance, paper and printing, packaging, food and beverage, and construction; Safety and Graphics, which serves a range of markets for the safety, security and productivity of people, facilities and systems; Electronics and Energy, which serves customers in electronics and energy markets, including solutions for electronic devices, telecommunications networks, electrical products, power generation and distribution, and infrastructure protection; Health Care, which serves markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, and health information systems, and Consumer, which serves markets that include consumer retail, office retail, home improvement, building maintenance and other markets.

Description In Non-Business Jargon:

You probably see 3M products everyday, and might never have noticed.  The most prevalent thing for me have been office supplies, such as tape and many different kinds of post it notes, sticky hooks, etc.  They also make a series of ACE bandages for injuries.  You can see all 16,000 of their consumer products here:

http://www.3m.com/3M/en_US/company-us/all-3m-products/

Basic Statistics

 

MARKET CAP93 BILLIONEPS GROWTH (5 YR EST)10.01%
CURRENT PRICE$140.49PEG
2.04
CURRENT P/E18.16PEGY1.56
CURRENT EPS7.74BETA1.12

 

P/E Under 20: Check. Within our normal limit.

EPS Current + Projected both over 3: Check. Earnings are quite high now at 7.74 per share, and we can expect some modest growth over the next 5 years according to predictions.  10% EPS growth would be quite nice considering how high earnings already are.

PEGY: No criteria here, but 1.56 is a very reasonable PEGY ratio for a company with such a huge market cap and long standing history of paying dividends.  Now, of course, some of this is due to the recent market slide which dropped MMM about $10 in price.  Still, I'm happy to sign up for paying $1.56 for $1 of growth/return for a company with such a vast toehold in their industry.

Dividend Information

 

DIVIDEND AMT$1.02DIV GROWTH - 1 YR22.8%
DIVIDEND YIELD2.92%DIV GROWTH - 3 YR
15.8%
PAYOUT RATIO52.7%DIV GROWTH - 5 YR9.7%
HISTORY56 YEARSPAYOUT RATIO (prev 5 years)37%, 37%, 37%, 38%, 46%

 

History: Check. 56 years of dividend growth is more than enough for me to call it safe.

Dividend Yield: Check. Over our 2.5% threshold.  2.92% is right in the range of these other foundation stocks I have chosen.  We won't get rich off of their dividends but we are also likely to avoid cuts and non-increases on a yearly basis. Nothing is worse than expecting a dividend and not receiving it.

Dividend Increases: Check and check.  Very nice dividend increases in the recent past.  22.8% is quite a raise.  We'd all be ecstatic if our day jobs decided to start paying us 23% more than we make now!  I wouldn't be surprised if this increase rate leveled off a bit in the future just because of the payout ratio we'll talk about next, but expect a nice yearly increase from MMM nonetheless.

Payout Ratio: Check. Payout ratio had been sub 40% until the last two years when it increased to 46% and now 53% this year.  Certainly not the trend we want to see, but we should also consider they raised the dividend 22.8% last year, which would obviously lead to a larger payout ratio without more earnings.  53% is not too alarming, although it would be worth monitoring if it got above 65-70% for me, which is a long way away.  One major advantage of choosing companies with a long history: A company that has been doing the dividend "thing" for 56 years tends to know what it can and can't afford to pay out based on earnings, so I think we are safe here.

$1000 Invested in January 2011

 

Obviously, this section doesn't do us any good if we DIDN'T invest $1000 in January 2011, but I figured it would give you an idea of how the stock has paid off in the recent future.  Don't read too much into this, as it serves as mostly motivation to begin investing as soon as possible and let time in the market work in your favor.

Present Value (as of 01/03/2015) = $1,897 with dividend reinvestment for an average return of 13.59% per year.

Summary

 

Value tends to lie in companies that you use everyday.  I'm willing to bet all of us have a few 3M products in our households.  MMM is a little unique compared to our other foundation stocks.  They have the long history of dividends of course, but they are also projected to have good growth (10% EPS growth over next 5 years) and they are increasing the dividend aggressively in recent years (9.7% average annual increase over last 5 years).  Seems to me like we are getting good value for a consistent stock.  I think its worth keeping an eye on that payout ratio to ensure it levels off a bit before it hits 65-70%, but its certainly safe right now.

My current plan, like the other 4 foundation stocks, is to build my MMM position up to 6% of my total portfolio and continue to hope for more dividend growth in the future.

That will do it for my 5 foundation stocks.  I have a couple of distinct sections of my portfolio that I might create next.  If you enjoyed reading these and/or found them useful, please share! It will help me out and help the website grow a little bit.  

Market is down right now, don't let it get YOU down too.  Stick to the plan and buy at good prices 🙂

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