3 Good Reasons to Like 3M Co (MMM)

Shares of 3M Co (MMM) have rebounded following a quick decline after earnings, and now they’re flirting with all-time highs just below $170.

3 Good Reasons to Like 3M Co (MMM)Despite the initial reaction, earnings were strong. Net income rose to $2.05 per share, up from $1.85 per share, despite a decline in revenue from $7.58 billion to $7.41 billion.

Despite being a 114-year-old company, management still believes it can produce 1% to 3% sales growth during 2016 (excluding currency impact) and post EPS within a range of $8.10 to $8.45 for the year.

Back in March, MMM management laid out growth projections looking out until 2020, in which the company believes it can produce earnings growth of 8% to 11% and organic sales growth of 2% to 5%.

While current 2016 projections are impressive (let alone the 2020 figures), let’s take a look at three reasons to like MMM before we start blinding buying shares, even if what management projects is wrong.

3M Has History on Its Side

Being a 114-year-old company means 3M has been through a number of recessions, and since the company is still around, we can assume it has made it through all of them safely.

While 3M stock may have lost nearly 50% of its value from mid-2007 to early 2009 during the Great Recession, within just a year of hitting its bottom, the stock price was trading close to pre-recession levels. MMM actually hit an all-time high just two years after the 2009 bottom. From there, 3M stock took nearly a straight line higher, gaining 80% from January 2011 until today.

Looking further back, MMM is up more than 2,464% since 1970 (not including dividends.) We have seen a number of recessions, wars, crises and world changing events, but 3M stock keeps climbing higher and setting new 52-week highs. But the main reason for that great performance over the years? Read on.

3M Has Some Serious Product Diversification

Most people know 3M as the company that makes tape. While true, 3M makes a few more items that can be found in nearly every home.

The list of products made consists of, but is not limited to: adhesives, sponges and other home care products, ceramics, sealants, filtration products, automotive products, painting products, traffic safety and security products, commercial cleaning products, medical supplies, skin and health products, food safety products, dental products, touch screens and touch monitors, interconnection devices, and renewable energy solutions. The list could go on, but I think you get the point. 3M makes a ton of different products, many of which most didn’t even know are made by 3M.

Besides the fact that MMM makes a lot of different products, the company makes a lot of stuff that consumers and businesses are going to buy regardless of the current economic situation.

If the economy is slipping, are you going to stop buying air filters for your AC/Furnace unit? How about stop cleaning your home or business? Have you ever seen this at the office “Management apologizes, due to slow economic times, we will no longer be purchasing tape for the office.”

While these ‘recession’ proof products don’t make up all of 3M’s sales, they help the company get through tough times and give management the ability to continually give capital back to shareholders, year after year after year.

3M’s Stable Dividend

3M currently has a dividend yield of 2.64%. Not an overly impressive yield, but one that is very stable and has recently been supercharged.

The stability of 3M’s dividend comes from its product diversity and, like its stock price, has been tested and proven over time. MMM has not only paid out a dividend every year since 1959, but it has increased its yearly dividend amount every year since then.

There are only five other companies within the S&P 500 that have been increasing their dividend for a longer period of time than MMM, and none of those five have 3M beat by more than three years.

While the long stretch of time MMM has been increasing its dividend amount is impressive, what may be more important is management’s decision to rapidly increase the dividend amount over the last few years.

Since 2007, 3M has increased its dividend by more than 140%. For comparison sake, AT&T Inc. (T) currently yields more than 5%, and has only increased its dividend by about 45% over the same time frame. Even with the big increase in recent years, 3M still only has a dividend payout ratio of 54%, indicating there is a lot more room to grow, even if management doesn’t hit their 2020 growth objectives or another recession hits.

A history of strong performance, a wide variety of products, and a strong healthy dividend make MMM a stock to not only buy today, but to hold for years to come.

As of this writing, Matt Thalman did not own shares of any company mentioned above. Follow him on Twitter at @mthalman5513.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/3m-co-mmm-stock-3-reasons/.

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