3M Co: Is Now the Time to Consider Owning 3M Stock?
Is There Upside Ahead for 3M Stock?
Over the past few weeks, 3M Co (NYSE:MMM) has been down about six percent. Is this an opportunity to purchase shares at a lower price point? Or it is best to stay away from the company?
The drop in the share price is because quarterly earnings were reported. Earnings per share came in at $2.58, which was below analysts’ expectation of $2.59. Revenue also came in below what analysts were expecting. (Source: “3M Company Earnings Surprise,” NASDAQ, last accessed July 31, 2017.)
Now, successful investing is not done based on a single quarterly report. Therefore, to determine if 3M is an appropriate investment, a long-term view is necessary. This article will take that view and examine the value of MMM stock.
Return on Capital
3M’s annual dividend is $4.70, which would amount to a current dividend yield of 2.34%. The payout’s growth is consistent; since 1959, there has been at least one dividend hike each year. Over the past five years, the dividend has seen an annual increase of between five and 35%.
The revenue is also increasing year after year, making the growing dividend affordable. Said growth is in part due to the company’s payout ratio, which it strives to keep at or around 50%. The remaining funds are put towards the business itself.
3M earns revenue from five different divisions: Industrial, Health Care, Safety & Graphics, Consumer, and Electronics & Energy. Each adds to the company’s diversification and benefits its risk profile, and if one division is not growing as fast as the others, one or more divisions could pick up the slack. This would result in a net positive or offset of revenue growth, which is great for shareholders over the long term.
Another diversification positive is 3M’s global presence. The company earns revenue from more than 200 countries around the world, with the majority of sales coming from outside the U.S.
3M also benefits from selling goods that are essential to everyday living, such as cleaning supplies, home healthcare products (braces, bandages, etc.) and home maintenance products (light bulbs, heating and cooling products, etc.). These are items needed no matter what state the economy is in. As such, these types of items are protected from inflation, with consumers taking on any increase in costs.
The evidence of all of the above can be seen in the company’s annual earnings. Below is a table of the annual earnings per share for 2013 to 2016.
|Year||Annual Actual Earnings|
And you can expect this trend to continue. Below is a table of forecasted earnings for 2017 to 2020:
Final Thoughts About 3M Stock
Looking at the big picture, 3M’s recently reported earnings missing analyst expectations was more of a one-time event. The company continues to grow, hence the need for a long-term view. And this recent price dip could be an opportunity to obtain exposure to 3M stock. And were you to purchase the shares now, a higher dividend yield would be received than that of a few weeks ago.
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