I was screening for stocks with a notable forward dividend yield, a market capitalization of more than $5 billion and with an acceptable forward price-earnings ratio.
I came across 3M Co. (MMM, Financial), which is an American multinational conglomerate operating in the industrial, consumer goods and health care sectors.
While the stock may not look cheap based on the Peter Lynch chart below, the stock is worth a look because it is showing some attractiveness.
The share price was $215.27 at market close on Sept. 20, nearly 113% higher than the Peter Lynch earnings line.
The company, however, is distributing a cash quarterly dividend of $1.36 per common share. If held constant for the next four quarters, the distribution leads to a forward annual dividend of $5.44 per share. As a result, 3M has a forward yield of 2.53%, which is 79 basis points higher than the S&P 500's dividend yield of 1.74% and higher than the one-year U.S. Treasury bill's 2.49% yield.
The company has distributed dividends to shareholders for almost 50 years, demonstrating that 3M is a loyal dividend payer. In addition, the income for investors of the company is guaranteed by very good long-term fundamentals and a strong balance sheet.
Thanks to an impressive portfolio of products - one of the most variegated among large conglomerates – 3M has progressively grown its annual revenues over time:
The net margin has also increased over time. The ratio is now 13.44% following a 1.5% average annual growth from 2013 to 2017. The median net margin for the industry is 4.85%.
The company is also increasing its net earnings. The bottom line has grown 7% per annum over the last five years.
GuruFocus ranks the company's profitability and growth 8 out of 10.
Looking ahead, analysts are optimistic about 3M's earnings growth for the current year, next year and the following five years. They forecast a nearly 13% increase to earnings of $10.34 per share in fiscal 2018, an 8.6% earnings increase to $11.23 per share in fiscal 2019 and a 9.7% annual average increase from 2019 to 2024.
Looking ahead in terms of sales growth, analysts are projecting a 5.2% increase to $33.3 billion in 2018 and a 3.2% growth to $34.37 billion in 2019.
With those growth perspectives, a decent forward price-earnings ratio of 19.16 is translating into a value of $215 to $216 per share.
With a flattening Treasury Yield Curve - as illustrated below- 3M's investment prospects are even more appealing.Â
3M also has a solid balance sheet. GuruFocus rated its financial strength 6 out of 10. The company has $3.2 billion in cash on hand and short-term securities, or $5.43 per share.
The company produces a variety of products, including laminates, abrasives, adhesives, passive fire protection, personal protective equipment, dental and orthodontic products. The company also produces electronic materials and circuits, medical products and health care software. The portfolio also includes car-care products and optical films.
As of the second quarter, 3M generated approximately $5.7 billion in cash flow from operations over the last 12 months.
The balance sheet is leveraged for about $14.54 billion. The debt-to-equity ratio is 140% versus an industry median of 37%. However, the interest coverage ratio is nearly 30. It means that the company can carry the cost of the outstanding debt with a meaningless impact on its financials.
As of June 30, 2018, the company has total assets valued at $36.8 billion and total liabilities valued at $26.4 billion. The current portion of total assets was 38%. The current ratio – which is calculated as total current assets on total current liabilities – was 1.56. The company can easily find liquidity to meet its short-term obligations.
3M Company is running its operations in over 70 countries and is employing more than 90,000 people worldwide.
The stock is 9% down so far this year. The share price at close Thursday, Sept. 20 is 13% off the 52-week low of $190.57 and 21% far from the 52-week high of $259.77. The market capitalization is $126.28 billion.
The recommendation rating is 2.9 out of 5.
3M Company is reporting 586.61 million shares outstanding, of which 61.25% is held by institutions and 0.31% is held by insiders. The float is 78.35%.
(Disclosure: I have no positions in any security mentioned in this article.)
