Is 3M a Good Stock to Buy?
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No discussion of industrial stocks with long histories of financial dominance is complete without 3M (NYSE: MMM), formerly known as Minnesota Mining and Manufacturing. This Dow Jones Industrial Average component is the gold standard for dividend stocks.
3M doesn’t often get much attention in the financial media. But industrials such as 3M play an important role in society, and this company in particular has a long and proud history of success. Investors looking for slow-and-steady growth and reliable dividends would be wise to consider 3M, but after a strong rally over the past several months, is now the time to buy?
Compelling shareholder returns
One of the best reasons to own 3M is its long-held policy of returning large portions of its cash flow through to shareholders via dividends and buybacks. Even better, 3M has a long track record of increasing the levels of these rewards on an annual basis.
In February, 3M announced it will increase its dividend by 8%. Not only that, but the company also announced it had authorized a $7.5 billion stock buyback program. The dividend raise marked the 55th consecutive year of dividend increases. Furthermore, 3M has paid uninterrupted dividends to shareholders for an amazing 96 years in a row. Over the past ten years, the company has returned $32 billion to shareholders through a combination of dividends and share repurchases, or 89% of reported net income.
It’s worth noting that 3M isn’t the only diversified industrial that treats its shareholders well. Diversified global industrial manufacturer Dover (NYSE: DOV) has an impressive track record itself. Last year, the company raised its dividend 11%, representing the 57th consecutive year of a dividend increase. That record is the fourth-longest streak of dividend increases of any publicly listed company according to Mergent.
Of course, no company can maintain this kind of streak without the supporting underlying fundamentals, which Dover has. Dover's full year 2012 revenue and diluted earnings per share from continuing operations climbed 10% and 11%, respectively, versus the prior year.
Another diversified industrial with a similarly long history of dividend growth is Emerson Electric (NYSE: EMR), which last raised its dividend in the fall of 2012. Emerson has a fantastic track record of raising its dividend for 55 consecutive years.
That being said, investors may have been disappointed by Emerson’s last dividend bump. Emerson increased its dividend by just one penny per share last year, amounting to just a 2.5% increase.
Great businesses in the industrial space
Companies within the industrial sector don’t have exciting businesses. They aren’t likely to be featured in the financial media as the next hot sector or major growth story. At the same time, they provide necessary functions to our society. They manufacture and distribute real, tangible things that build our very infrastructure and contribute heavily to the economy.
3M, Dover, and Emerson Electric are all well-run, extremely profitable businesses. While we can quibble with their valuations, certainly a valid concern with each of these stocks trading for more than 17 times earnings, you can’t argue with the quality businesses these blue-chips operate.
That being said, I’d consider 3M, as well as Dover and Emerson to be solid holds. They aren’t screaming bargains and have rallied significantly in recent months. To illustrate, consider that these stocks’ dividend yields have fallen below 3% annualized.
Investors will still receive those quarterly dividend checks and each of these companies should increase their dividends on an annual basis. For the time being, I’d advise investors to wait for a pullback before jumping in, but should an opportunity arise, don’t hesitate to add any one of these great businesses to your portfolio.
With over 50,000 products, 3M plays a role in making everything from computers to power cables. A long history of invention and innovation has driven the company to its wide reach, but a focus on operational efficiency may be hurting the creative culture that once created Scotch Tape and the Post-it note. A new leader has taken over and vows to return innovation to the forefront. Does this mean the stock will become more than a dividend, returning to its former glory as a growth stock once again? Find out whether 3M has what it takes to pull it off in The Motley Fool's comprehensive new research report on the company. Simply click here now to claim your copy today.
Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends 3M and Emerson Electric Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!