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  • Writer's pictureIshfaaq Peerally

Time to BUY 3M Stock?

3M $MMM is a dividend aristocrat down by 50%. This is the most diverse company that I know. It is a company with several moats as they make thousands of products used in multiple industries all over the world. Unlike Apple $AAPL which rely on the iPhone as its central product and everything else revolving around it, 3M doesn't rely on a single product but they are very similar to Apple. Both companies make essential products. It is not because 3M makes thousands of products that these products are not essential. 3M currently has over 120 000 patents and the business is divided into 4 segments. 1. Healthcare 2. Safety and Industrial 3. Transportation and Electronics 4. Consumer Each of these segments is further divided into subsegments. They also have geographic diversification as only 40% of their sales come from the US. The reason why the revenues and consequently stock price have been doing poorly lately is because of the trade war and slower economic growth all over the world. Being a diversified business means that it is a slow grower. When a company focuses on a single product, it can grow at a faster rate compared to the competition. If we look at Apple in the last decade, the revenues grew by 368%, that of Microsoft $$MSFT (which is more diversified) by 114% and that of 3M by only 26%. 3M stock has actually been doing as good as the market $SPX500 but if you had reinvested the dividends, you would have beaten the market. 3M has a very generous dividend with a current yield of 4%. The problem with 3M is on its balance sheet. The debt in 2015 was $5 billion and today it is $20 billion. Why are they taking so much debt? It is to finance the dividend payout and share buybacks. In 2015, the dividend payout ratio was 40%, today it is 72%. It is not because you're a dividend aristocrat that you need to be increasing your dividends too much just to maintain the high yield. Sooner or later, you'll have a bad year and things will get out of control. It happened with GE $GE . Right now, I'm not so scared of the debt. Things are still under control. They have a new CEO and we need to see how things will change. But this is not a stock for me. You can invest in 3M for the long-term and you'll get average returns. But if you're looking for a stock that will outperform the market, then 3M is not one. Watch the full video on YouTube and Subscribe: You can find the full analysis on my research partnership: Gilead Sciences $GILD video: Join my private investing group on Facebook for more:

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