A detailed quantitative analysis by 3M Company (MMM) is linked here. Below are some highlights from the analysis linked above:
Company description: 3M Co. provides enhanced product capabilities in electronics, healthcare, industrial, consumer, office, telecommunications, security, and other markets through coatings, sealants, adhesives, and other chemical additives.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
MMM trades at a premium to all four of the above ratings. Since the material book value of MMM is not meaningful, a Graham number cannot be calculated. Including the NPV MMA differential, the stock is trading at a premium of 48.6% on the calculated fair value of $ 133.26. MMM does not deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend growth rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
MMM has earned two stars for 1.) and 3.) above in this section. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. MMM received a star for an acceptable score on at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1916 and has increased its dividend payments for 63 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 111 is below the $ 500 target I’m looking for for a stock that has increased dividends as long as MMM has done so. The stock’s current yield of 2.99% exceeds the estimated average MMA rate of 2.74% for 20 years.
Peers: The company’s peer group includes: General Electric Co. (GE) with a yield of 0.3%, Raven Industries Inc. (RAVN) with a yield of 0.0% and Carlisle Companies Inc. (CSL) with a yield of 1.2%.
Conclusion: MMM did not deserve any stars in the Fair Value category, earned two stars in the Dividend Analytical Data category and did not deserve any stars for a total of two stars in the Dividend Income vs. MMA category. This means that MMM is quantitatively called 2 star weak Warehouse.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to drop to $ 139.92 before MMM’s NPM MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 63 years of consecutive dividend increases. At that price, the stock would generate a return of 4.2%.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the targeted MMA differential of $ 500. The calculated rate is 4.4%. This dividend growth rate is higher at the 1.7% used in this analysis, so there is no margin of safety. MMM has one Risk assessment of 1.75, which it classifies as a medium risk stock.
MMM is a leader in many markets and serves a culture that thrives on innovation. The focus on the bottom line and cost effective manufacturing have put a wide rift around the core business. The company has had strong historical earnings, dividend growth, and free cash flow with only modest capital investments.
The company has consistently returned substantial cash to its shareholders through share buybacks and dividends. The free cash flow payout of 52% (versus 61%) is below my maximum of 60%, and debt to total capital of 60% (versus the previous 75%) is above my maximum of 45%. MMM is a great company with a great future. The stock is currently trading above my calculated fair value of $ 133.26. I will continue to wait for better ways to improve my position if my assignment allows.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks you should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I was long in MMM (0.7% of my dividend growth portfolio).