Portfolio Stocks


Poor Richard's Financial Strategies

Last updated 7th, Septmeber 2015

Initial evaluation: 7th, September 2015
Not yet purchased.  Will likely take stake of between 3% and 10% of total portfolio value
3M is a one of the best bell weather dividend stocks in the history of the American stock market.  When the market is in a downtrend it's always nice to add some solid value stocks at a discount.
First Look:
In looking at 3M, here is what I initailly found.  To be honest I don't usually do it in this order but I've organized it this way for clarity.  I usually jump around hitting the meatiest information first.  Note that I have only documented what I feel to be the most important aspects of my evaluation.:
  1. Why am I interested in this company?
    • I am typically a value investor, I love Dividends, especially reliable growing dividends.  3M epitomizes the greatest hopes of the dividend investor (many decades with no interuption, steadily growing, from a solid balance sheet) so it's a good selection being that I am just now building out my DIY portforlio and the market is in a correction, offering 3M at what I believe to be a good price.  At current prices, the dividend is just under 3%
  2. Who are they? What do they do? How do they make their money?
    • Go to http://finance.yahoo.com/ enter ticker and check the various tabs (Profile, Summary, Competitors, Industry)
    • Go to the Company's site http://www.3m.com and see what the products brands the company offers.  If there is an investor link look at that.  Essentailly scour the site to get and understanding of the company. 
  3. Look at articles.  What do others have to say?  Especially those who are interested in the company for the same reasons I am.
    • http://finance.yahoo.com/ look at the articles. 
    • Check http://seekingalpha.com/ and see what other amateur investors have to say.
    • With a large company like 3M, if there are any major known or suspected issues that should concern you, someone will likely have written about it.  When getting opinions I consider those that are related to my investment style.  Being a value investor for many years, I don't put too much weight in opinions about technal trends and patterns, but I do put a lot of weight on things that could impact the company's business, profits and Shareholder yeild.  In the case of 3M, it is a very well run comapny and has been for many years.  It is diversified accross many sectors and unlike some conglomerates it knows it's place in the commercial world and is not branched into poorly fitting areas where it doesn't compete as a leader. 
  4. Verify that the dividend is safe.
    • Based on Yahoo Finance Key Statistics the current Free Cash Flow ( great instructional FCF resource ) is $4.39 Billion.  They also have total cash of $3.48 Billion.  At a Market Cap of $87.36 Billion, the current dividend yield of 2.93% requires $2.56 Billion.  The current FCF covers the dividend adequately.
    • In YCHARTS I check the FCF for the past few years and find that it is steadily growing with a slight stumble in the most recent quarter.  This in my opinion is based on top line revenue being effected by the current environment with a strong US dollar (Impacting all US companies with a global footprint) and turmoil in china so I won't worry too much about this one data point.  After all, part of the reason that the Stock is on sale is specifically due to these macro conditions.  3M in my opinion is a solid company, feeling it's share of the pain from larger macro conditions and fears.   When I compare the revenue with the  FCF stumble, it appears to be reflected in the top line revenue telling me that the cause has more to due with the larger environment than with 3M alone and since I am currently shopping based on the the market pull back, this factor does not sway me.
  • Based on the longer trend of FCF, I would expect that in the longer term 3M will continue to grow their FCF and therefore dividends.  If I look at the companies Dividend payout over the years I get a sense for managements inclination to pay and steadily raise dividends.  (In fact for over 50 years):
  • Also, I check the revenue growth since it is highly unlikely that the Shareholder Yield (in the form of Dividends) will grow if the companies business is not growing.  You notice in the chart below tha the growth again get's hit in the last quarter.   In my opinion this again is due to the current World environment and is not indicative of a problem specific to 3M.  In the long run 3M has persisted on a solid path in good times and bad.