Dividend Stock Analysis

3M Dividend Stock analysis

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3M Company (NYSE: MMM) is a diversified technology company with a global presence in industrial and transportation; health care; consumer and office; safety, security and protection services; display and graphics, and electro and communications.

3M operates in six business segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications.

MMM has shown strong growth in dividends, eps, and free cash flow over the past 10 years.  Average growth rates are 6.41% for dividends, 8.08% for eps, and free cash flow at 15.73%.  The high growth of cash flow has been more than enough to cover the current dividend as well as any future growth.

The payout ratio trends shown here support this fact.  Over the past decade they now both sit below 50%.

MMM has shown upward trending margins.  This could mean that their growth is the result of cost cutting rather than increasing business.  This is not the case however, as revenue has grown by an average of 3.6% a year.  So MMM has been effective on both fronts, increasing their revenue while also cutting costs.

The balance sheet of the company is strong.  Following their 10 year debt ratios, we can see that they have done a good job of keeping debt to a reasonable level.  And their current total debt ratios of under 40% are attractive.

My only issue with 3M at the moment is it’s price.  At the current price of 84.66, it trades at a trailing p/e of 18.73, and a forward p/e of 14.72.  The yield of the current dividend in 2010 of 2.10 is 2.41%

I think 3M is a great company.  They are diversified, world-wide, and well managed.  Brands like Scotch Tape and Post-it Notes have huge moats.  Their fundamental analysis shows great numbers across the board.  And management has a proven track record of returning cash to shareholders.

I think the current valuation is a little bit rich.  I can understand a lot of investors fleeing to this stock when the market tanked, and they were looking for those mature, stable, dividend paying blue chips.  I hope that when the next fad hits the market, 3M will fall by the wayside to a more reasonable price.

Full Disclosure:  I do not own any MMM

I'm a dividend growth investor who is aiming to retire early in 5 years at the age of 45. My goal is to live off the income my dividend portfolio and rental property produce exclusively and leave the corporate rat race. I hope you will join me in this journey!

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