In this article I discuss three reasons why 3M Company is a buy. 3M Company (MMM) is a favorite of many dividend growth investors. But the stock price is still down from its high in early 2018, requiring investors to have extreme patience in the current bull market. It is trading at levels last seen in 2015-2016. Several Seeking Alpha authors, including myself, have documented the reasons why the stock price has been pressured, including lawsuits related to PFAS and a few other products, the U.S. and China trade war, a downturn in China’s automotive sales, leverage, and COVID-19. This lengthy list likely kept investors on the sidelines. However, I believe that today there are three reasons why 3M is a buy for long-term dividend growth investors: 3M is reducing debt and improving capital deployment, the third quarter will be better than the second quarter, and the company is a Dividend King.
Company Is Reducing Debt and Improving Capital Deployment
3M historically had a fortress balance sheet. But starting at about 2014, long-term debt and net debt started to rise. The leverage ratio (net debt-to-EBITDA) rose from a minuscule 0.16X at end of 2013 to 2.06X at the end of 2019. 3M had about $2,795 million in short-term debt and $17,518 million in long-term debt, offset by only about $2,451 million in cash, equivalents, and short-term investments at the end of 2019. Much of this debt was being used for share buybacks, which is not a good use of debt, in my opinion. Granted, some debt was also used for the $6.7 billion Acelity acquisition in 2019, expanding 3M’s business in wound care.
3M seems to have turned the corner on the philosophy of using debt for share buybacks. There was only $365 million in stock repurchases in the first quarter and only $1 million in stock repurchases in the second quarter. Further, net debt declined by about 10% to $17,151 million…
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.