Magnificent Money Maker

By Ryan Guenette - August 9, 2012 | Tickers: MMM, DHR, GE, HSC, JNJ | 0 Comments

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3M Company (NYSE: MMM) is a highly diversified capital goods company with a presence in the industrial and transportation, health care, consumer and office, security and protection services, safety, graphics and display, and electro and communications divisions. At the last count, 3M is worth approximately $63.19 billion, and is an elite member of the Dow 30. 3M possesses several globally recognized brands, such as: Post-it products and Scotch tapes and adhesives. Over the past year 3M’s stock has been as low as $68.63, and as high as $92.34, yet after it all has finished the year up 10.47%, slightly underperforming the S&P 500. So why is this global capital goods giant a magnificent money maker?

Sustainability is Key

3M Company was founded in 1902, when five entrepreneurs founded the company on the North Shore of Lake Superior. 3M has been in business for 110 years. Not a lot of companies can say they have been in business for a hundred and ten years, living through two World Wars, the great depression, the great recession, the landing of a man on the moon, September 11^th, 2001, the Vietnam War, the assassination of John F. Kennedy, the death of Osama bin Laden, the Manhattan Project, and the Iraq War. 3M is highly linked to the global economic landscape. When the overall economic environment is more favorable, 3M will perform on a higher level, while when the recessions begin, 3M will feel some hurt, but not as much as other companies because of its diversification. It is crystal clear that there is a distinct demand for 3M’s products in all types of economies. 3M has proved rock-solid results over the past 110 years, and will continue to do so.    

Income for the Long-Term

In 2009, 3M Company reported earnings per share of $4.52. In 2014, the average consensus believes 3M’s earnings per share will grow to $7.55. That is a five year increase in earnings per share of 67.04%. That is a compound annual growth rate (CAGR) of 10.81%. 3M’s earnings per share are projected to continue to grow during this stretch, all while at the same time paying out a sizable dividend. Since 1987, 3M has been paying out dividends. Starting only paying out an annual dividend of $0.48, 3M has consistently paid out a dividend, and regularly raised it. Currently, 3M pays out an annual dividend of $2.36, yielding 2.56% at current prices. In 2014, the street strongly expects 3M’s annual dividend to be $2.82, yielding 3.09% at current prices. 3M’s dividend greatly outpaces the ten year treasury rate of 1.60%, as well as the inflation rate of 1.70%. The bottom line is that 3M is growing at a steady and consistent rate, while at the same time paying out a generous dividend. The chart below displays 3M’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the foreseeable future.       

Industry Leader

Compared to some of some of 3M’s most prominent competitors, such as: Harsco Corporation (NYSE: HSC), General Electric Company (NYSE: GE), Danaher Corporation (NYSE: DHR), and Johnson & Johnson (NYSE: JNJ), 3M stacks up relatively in-line.

In terms of growth, 3M is average, while Danaher leads the industry. All companies in the industry pay out dividends, with Harsco possessing the largest dividend, and Danaher possessing the fastest growing dividend. In the fundamental ratio comparison, 3M appears to be trading with the smallest multiple, while Johnson & Johnson trades at a premium. When growth is taken into account, General Electric is ideally priced, while Harsco is rather expensive. In the net profit margin comparison, Johnson & Johnson stands out to the upside, while Harsco loses money.

The Foolish Bottom Line

3M is a highly diversified company, and will not rapidly fall off a cliff. 3M is a slow-roller, consistency growing its company and paying out an expanding dividend. The economic environment is extremely volatile, and with a global slowdown lingering, it is reassuring and comforting to know that your money is invested in a company as stable and reliable as 3M. 3M is a company for stable growth, reliable dividends, and sleeping with reassurance.      

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