3M Company: Finally, a Great Dividend Growth Company Becoming a Good Investment!
I find it serendipitous that after just completing a 19-part series on how highly valued the general market is, I get the pause that refreshes. Now please don’t read more into my words than are being offered. I still believe that the market at large is fully valued. Consequently, finding great companies at great values is still rare and hard to do. However, after Monday’s swoon, we are finally (at least I am) starting to see some value coming into focus on some of my favorite companies. Therefore, I can finally feature some of my favorite companies that have become good value choices.
3M Company (MMM) is a case in point. There are a lot of valid reasons to like 3M, therefore, it’s no surprise that many dividend growth investors do. Although I am a long-term fan of the business, as a value investor, I have not been a fan of the stock for more than 2 ½ years. However, that changed as of yesterday. Today, I consider 3M fairly-valued but not necessarily cheap – at least yet. Stated more directly, I consider 3M a sound investment today based on quality and valuation.
This leads me to a brief discussion on what my personal experience suggests is a common misconception about quality stocks at attractive valuations. Just because a company becomes fairly- valued does not simultaneously suggest that it is also a great investment. It may now be sound and prudent, but still not be capable of generating exceptionally high rates of return. This is how I currently see 3M Company. Because it has moved into fair valuation territory, I have added it to my buy watch list. However, I am still not quite ready to lay my money down, but I am close. Therefore, I will be watching it carefully looking for an entry point that I believe would make it both a good company and a good investment.
Investment Thesis: Short and Long-Term Perspective
I never invest in any stock without first calculating a specific and precise forecast of what future returns I might expect. In other words, I never buy a stock simply hoping that it will go up, or in hopes that it might raise its dividend over time. Instead, I attempt to assemble as much relevant information as I can that will support a thesis for growth and/or sustainability. Furthermore, I utilize this information to run my expected future return numbers out to their most logical conclusion.
Additionally, I go through this exercise from a best, worst and most likely expectation. Future returns can never be precisely calculated. However, rational forecasts supported by data can provide a reasonable level of expectations that are highly likely to unfold within an acceptable range or level. So, this might beg the question, how do I do that, or what’s the process? The central idea is to simply run your growth expectations out to their logical conclusions and apply rational valuation methodologies to the numbers. In the FAST Graphs analyze out loud video later in this article, I will cover this process extensively.