Seeking Alpha
, Portfolio123 (1,577 clicks)
Long only, value, research analyst, dividend investing
Profile| Send Message|
( followers)  

Inflation is the worst enemy to our savings, even in periods of low inflation like we have these days it is difficult to beat inflation because the current low interest rates are falling way behind the current rate of inflation.

In this article, I will show that holding the 3M Company (NYSE:MMM) stock for long periods had beaten inflation for almost each time-frame of 10 years, during the last 40 years. It had also outperformed the S&P 500 Index for all the time-frame of 10 years starting at the beginning of 1973. Although the past guarantees nothing, it does provide insight into how 3M Company has performed under various economic conditions over varying time frames. All the data for this article was taken from Yahoo Finance.

The 3M Company operates as a diversified technology company worldwide. 3M serves customers through five business groups, which increase speed and efficiency by sharing technological, manufacturing, marketing and other resources. The five business groups are: consumer, electronics and energy, health care, Industrial and safety and graphics.

The two tables below present some important valuation metrics and dividend information.

3M Company daily chart

(click to enlarge)

Chart: finviz.com

3M Company long term price chart

MMM Chart

MMM data by YCharts

3M Company has a long history of steadily increasing dividend payment. The table and the charts below present the dividend rates, the dividend yields and the dividend rate of growth for the past five and 5 years, 10 years, 20 years and 40 years.

(click to enlarge)

(click to enlarge)

MMM Dividend Yield Chart

MMM Dividend Yield data by YCharts

The table below presents the total return and the compound annual growth rate (OTCPK:CAGR) of holding the MMM stock for the last five years, 10 years, 20 years, 30 years and 40 years. The returns without dividends (capital gains) and with dividends are shown separately, in order to emphasize the importance of the dividend yield.

(click to enlarge)

Holding the MMM stock during the last five years has given an average annual return of 8.1%, without the dividends the average annual return would be 5.0%. Holding the MMM stock during the last 10 years has given an average annual return of 7.5%, during the last 20 years an average annual return of 9.9%, and during the last 40 years a nice annual return of 9.3%.

The table below presents the average inflation rate, and the S&P 500 index average annual capital gains for the last five years, 10 years, 20 years, 30 years and 40 years.

(click to enlarge)

The two tables clearly show that during all these periods, holding the MMM stock has given much higher average annual return than the inflation rate, and also has outperformed the S&P 500 index by a significant margin.

The table below presents the total return and the compound annual growth rate (OTCPK:CAGR) of holding the MMM stock for four time-frames of 10 years starting at the beginning of 1973.

(click to enlarge)

The table below presents the average inflation rate, and the S&P 500 index average annual capital gains for four time-frames of 10 years starting at the beginning of 1973.

(click to enlarge)

The two tables show that for the four time-frames of 10 years starting at the beginning of 1973, holding the MMM stock had outperformed the S&P 500 index. Holding the MMM stock had also given much higher average annual return than the inflation rate in three of the four time-frames of 10 years. The only exception was the period between 1973 to 1983 due to the wild inflation in those years and the 1973-1974 stock market crash. At that time-frame the MMM average annual return was 3.3%, while the average annual inflation rate was 8.7%, and the S&P 500 average annual gains was 2.3%.

Summary

The table below presents the compound annual growth rate (OTCPK:CAGR) of holding the MMM stock for the last five years, 10 years, 20 years and 40 years, and the average annual U.S. inflation rate during those periods, calculated by the CPI change. The average annual capital gains of the S&P 500 index are also shown.

(click to enlarge)

The table clearly shows that during all these periods, holding the MMM stock has given much higher average annual return than the inflation rate and has outperformed the S&P 500 index.

Source: How To Beat Inflation - Hold 3M Company Stock For Many Years