The FiveTwenty portfolio received no dividends in the last week.
| Past Week Dividend | $0 |
| Current Quarter Dividend | $0 |
| Estimated Annual Dividend | $603.81 |
| LifeTime Dividend | $0 |
The capital allocation for the week of 02/28/2021 to 03/06/2021 will be used to establish a position in 3M Co (NYSE: MMM).
MMM – Company Profile
3M Co (MMM) develops, manufactures, and markets various products worldwide. It operates through four business segments: Safety and Industrial, Transportation and Electronics, Health Care, and Consumer. Post-It, Scotch-Brite, Scotch, Command (as in Command Hooks), and Nexcare are some of the company’s best known brands. Official Site | Wikipedia
| Dividend Streak | 63 years |
| Yield | 3.36% |
| Payout Ratio | 63.67% |
| P/E | 18.93 |
Financials
Does MMM have the financial means to sustain and raise its dividend going forward?
Over the last decade, MMM was able to steadily grow both its revenue and net income. Net earnings have grown a slightly faster pace then revenue. The company seems to have experience a slight net income margin expansion from 14.46% in 2011 to 16.72% in 2020.
EPS have also steadily grown in the last 10 years. MMM had an average EPS growth rate of 4.70% per year over the past 10 years and 5.30% per year over the last 3 years. Helped by a consistent policy of share repurchases the EPS growth rate has outpaced both revenue and net earnings growth over the decade.
Furthermore, MMM had a strong dividend growth track record over the last decade. The average dividend per share growth rate was 12.50% per year in the past 10 years and 7.80% per year in the past 3 years. (per GuruFocus). Since the dividend growth rate was higher than EPS growth rate, it caused an expansion of the payout ratio. Therefore, we expect dividend growth rate to continue to slow down for the next few year and the payout ratio to come down to mid 50s.
In 2020 the company navigated the uncertain economic conditions due to the COVID-19 pandemic relatively well. MMM experienced sluggish performance in the first half of the year, lowlighted by a Q2 in which it saw sales decline across all its segments compared to the previous year. However, a quick bounce back in the second half, lead by the safety and industrial and health care segments, resulted in a 0.1 percent increase in revenue over the previous year. Management expects the strong performance of H2 2020 to continue and has forecast revenue growth of 5-8% for 2021.
Valuation
Are we paying too much for MMM at the current share price?
In the last 10 years, MMM’s P/E ratio saw a low of 12.21 and a high of 35.81, with a median value of 19.73. (per GuruFocus) The current TTM P/E ratio of 18.93 is near but below the historical median.
The current share price of $175.06 is 0.3% above the 50-day moving average and 5.9% above the 200-day moving average. Additionally, the share price is near the top of the 52 week trading range.
The current P/E ratio for MMM is slightly below the average multiple shares have traded at since 2014.
Yield
How does the current dividend yield for MMM compare to historical values?
In the last 10 years, the dividend yield for MMM has been in a range of 1.82% to 4.64%, with a media of 2.48%. The current TTM yield of 3.36% is considerably above the historical median.
The current above average yield for MMM makes it an attractive entry point. Additionally, it provides a buffer against slower dividend growth in the next few years.
Thesis
Why are we adding MMM to the FiveTwenty portfolio?
MMM has a strong and diversified portfolio of products. Additionally, it has demonstrated a strong commitment to continuous innovation, through a consistent investment in R&D and the ability to derive a significant portion of revenue from new products.
Additionally, we believe that the company will continue to carefully manage its dividend and provide the FiveTwenty portfolio with a steady stream of dividend income for the foreseeable future.
The current payout ratio of 63.67% is slightly above our target entry criteria of 60%. However, with the dividend only increasing by 0.68% percent for 2021 we expect the ratio to dip back below 60% as soon as Q1 2021.
Additional Research
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