Company Description: 3M Co. provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives and other chemical additives.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
MMM is trading at a discount to only 3.) above. Since MMM's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 501.7% premium to its calculated fair value of $16.64. MMM did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
MMM earned one Star in this section for 1.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The company has paid a cash dividend to shareholders every year since 1916 and has increased its dividend payments for 0 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The negative NPV MMA Diff. means that on a NPV basis the dividend earnings from an investment in MMM would be less than a similar amount invested in MMA earning a 20-year average rate of 3.75%. If MMM grows its dividend at 0.0% per year, it will never equal a MMA yielding an estimated 20-year average rate of 3.75%.
Peers: The company's peer group includes: General Electric Co. (GE) with a 0.7% yield and Carlisle Companies Inc. (CSL) with a 0.8% yield.
Conclusion: MMM did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks MMM as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $4.18 before MMM's NPV MMA Differential increased to the $3,500 minimum that I look for in a stock with 0 years of consecutive dividend increases. At that price the stock would yield 86.36%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $3,500 NPV MMA Differential, the calculated rate is 11.0%. This dividend growth rate is higher than the -39.8% used in this analysis, thus providing no margin of safety. MMM has a risk rating of 2.25 which classifies it as a Medium risk stock.
MMM is the leader in many of the markets that it serves with a culture that thrives on innovation. Its bottom-line focus and low-cost manufacturing have built a wide moat around its core businesses. The company recently has cut its dividend and is in dander of being removed from my database.
The company has consistently returned significant cash to its shareholders through share repurchase and dividends. Its Free Cash Flow Payout, based on the lower dividend, of 43% (down from 82%) is below my maximum of 60%, but its Debt to Total Capital of 82% (up from previous 52%) is above my maximum of 45%. The stock is currently trading above my calculated fair value of $16.64. I had previously sold my entire position in the stock due to poor long-term performance, and in hind-sight it was a good decision.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I help no position in MMM (0.0% of my Dividend Growth Portfolio).
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