Not every Wall Street analyst has a buy recommendation on 3M (MMM). In fact, only about one-third of analysts are bullish on the stock, so I keep looking for a reason not to buy it.
I can’t find one.
This $31 billion global industrial conglomerate headquartered in the heartland (near St. Paul, Minn.) has long been a winner for investors, and to me looks like it’s just going to keep on winning.
Retirement stocks have special critieria to make it into my portfolio. They need to represent both consistency and innovation. They aren’t resting on their laurels, but growing modestly — like a Peter Lynch stalwart — and growing EPS. Sure, they can hit bumps in the road and not grow, but as long as they maintain or raise their dividend, buy back stock, and generate tons of free cash flow, it fits the bill.
With that in mind, there are plenty of reasons to like MMM stock for retirement.
You might only know 3M stock from the everyday products you have in your home. Yet 3M is home to some 50,000 products across multiple sectors: Industrial (34% of 2013 revenues and 32% of operating profits); Safety & Graphics (18% and 18%); Healthcare (17% and 24%); Electronics & Energy (17% and 13%), and Consumer (14% and 13%).
That’s another retirement winner — diversification. Any one or even two of these segments can tank in a given economy, but the others are there to pick up the slack. The entire MMM company isn’t at risk in a major crisis.
Here’s another reason to like 3M stock, and it somewhat refers to innovation. Back in 2012, MMM management announced five-year financial goals, demonstrating that they are on top of things and not resting on their laurels. And they have been hitting these targets ever since: annual EPS growth of of 9%-11%; annual growth in organic sales of 4%-6%; and 20% return on investment.
Let’s talk about those dividends, too. I want to see consistent dividend payouts — and preferably rising yields. 3M stock is one of 54 U.S. companies that have increased dividends every year over the past 25 years. Earlier this year, 3M stock raised its quarterly dividend by 35%, from 63.5 cents to 85.5 cents.
I also want to see share buybacks from my retirement stocks.
MMM announced a huge increase in its stock buyback program through 2017, upping its estimate of buybacks from a range of $7.5 billion-$15 billion to a range of $17 billion to $22 billion.
The stock is trading just below $144, with a dividend yield of 2.4%. At that price, it trades at 20x trailing EPS, compared to the S&P 500 average PE of 18.3. EPS growth is pegged at 12% per year over the next five years, a point better than the top of management’s goal range.
Wall Street’s one-year price target for 3M is $153 and change. I think that’s reasonable, if current the current PE holds at 20.31. And if it holds for five years, at the estimated earnings growth rate you could see the stock breaking $200 per share by 2018 and approach $250 per share in 2019. With dividends growing 5% a year and being reinvested, in this scenario the stock would throw off an annual average return north of 20%.
Yeah, if you’re looking for retirement stocks you could do a lot worse than MMM.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of Asymmetrical Media Strategies, a crisis PR firm, and PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets at @ichabodscranium.