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3M: A Boring, Beautiful Dividend Machine

24.01.2013. Источник: InvestorPlace.com

At more than $99 a share, 3M (NYSE:MMM) is the third-most important stock in the price-weighted blue-chip average.

And, with its sprawling portfolio of brands and materials sold in almost every corner of the globe, the conglomerate is a bellwether for demand in everything, from transportation to healthcare to consumer electronics.

Furthermore, 3M is a payout champion. It has delivered a dividend since 1916 and has increased its annual cash dividend every year for more than a half a century — earning it a place on InvestorPlace’s list of Dependable Dividend Stocks.

Yet when 3M reports quarterly earnings Thursday, it will garner a fraction of the attention lavished earlier this season on fellow Dow components like IBM (NYSE:IBM), McDonald’s (NYSE:MCD) or, jeez, even Alcoa (NYSE:AA).

Let’s face it: Adhesives, optical film solutions and Post-it notes just ain’t that sexy.

But don’t let the media and market’s generalized shrug keep you from considering this blue-chip stalwart for a part in your portfolio.

3M’s stock has delivered market-beating returns over the last 52 weeks — and gone almost vertical in the past three months — but it’s hardly gotten ahead of itself on a relative valuation basis.

Meanwhile, Wall Street forecasts solid earnings growth when the company reports quarterly numbers Thursday, helped by a small uptick in revenue and fatter margins.

Analysts, on average, forecast 3M to show a 4.4% gain in EPS to $1.41 a share, according to a survey by Thomson Reuters. Revenue is expected to increase 1.3% to $7.18 billion from $7.09 billion in last year’s fourth quarter. Hardly barn-burning figures, to be sure, but they beat the heck out of the broader market, which is forecast to post earnings growth of less than 2% this quarter, according to FactSet.

More important, 3M’s growth trajectory is expected to accelerate over the next five years or so. Analysts’ peg 3M’s long-term earnings growth rate at 9.7% — significantly faster than the 6.7% rate 3M logged over the last five years, and almost a full percentage point better than the S&P 500′s expected growth rate.

At the same time, 3M by no means looks overpriced on a trailing or forward earnings basis, despite the recent share-price appreciation. MMM is up 16% over the last 52 weeks, besting the broader market by 2.5 percentage points. Since mid-November, 3M has tacked on nearly 14%, versus a 10% post-election rally in the S&P 500.

And yet with a forward price-to-earnings (P/E) ratio of 14.5 and a trailing P/E of less than 16, 3M still trades in line with its own five-year averages, according to data from Thomson Reuters.

Sure, it’d be nice if it were cheaper, but then you’d also have to worry about why the market refuses to pay up for a supposedly high-quality stock.

And make no mistake: 3M sure looks like a high-quality stock. Return on equity stands at more than 25%. Operating margins are an enviable 22%. The company is sitting on more than $7 a share in cash and has a book value per share of $25.50.

Oh, and as noted above, it has as dependable — and rising – a dividend as you could hope for.

Check this out: Over the last five years, 3M shares have gained 30% on a price basis. But add in the dividends and the stock has returned … wait for it … 50%.

No, 3M doesn’t get much glory, but then that kind of total return performance trumps sex appeal every time.

As of this writing, Dan Burrows did not hold positions in any of the aforementioned securities.


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