3M: Can This Dividend Stalwart Successfully Defend Its Growth Patents?

| About: 3M Company (MMM)

Summary

3M is deciding to sue Amphenol (APH) for infringing on some of its data transmission cable patents.

The lawsuit is based on the notion that Amphenol infringed on two of 3M’s patents relating to its shielded electrical cables.

These patents account for just a very small part of 3M’s revenue streams but the problem is they are a solution for a growing area, server rooms of data centers.

3M (NYSE:MMM) has been one of the better performing industrial stocks since the election. As you can see from the chart below it has beaten the likes of United Technologies (NYSE:UTX), General Electric (NYSE:GE), and even the S&P 500. But it isn't without its problems either. As we know, imitation is the best form of flattery. But in this case 3M is deciding to sue Amphenol (NYSE:APH) for infringing on some of its data transmission cable patents, and I would like to take a look at what this means for 3M.

Source: Google Finance

The lawsuit is based on the notion that Amphenol infringed on two of 3M's patents relating to its shielded electrical cables. The shielded electrical cables help bring value to 3M's customers through the means of efficient energy delivery for computing environments which require more efficient and faster routines. The cables are also very thin which makes them foldable, causing them to take up less space in the server rooms.

3M is exercising its right to defend its patents like anyone else would to help protect its revenues. Patents take up the form among other things to create an entry barrier into any market. In this instance 3M obtained a sample of Amphenhol's shielded ribbing cables and felt there was enough there to bring about this lawsuit. 3M feels that Amphenol has infringed on the patents to extent that it is requesting a cash payment for the infringement in addition to barring Amphenol from using 3M technology on an unauthorized basis.

3M hasn't issued these patents for long at all, one was issued in January of 2015 while the other was just placed last month. These patents account for just a very small part of 3M's revenue streams but the problem is they are a solution for a growing area, server rooms of data centers. As the buildout of data centers continue in this country these will be the types of conduits that will be required to grow the infrastructure so it will be important for 3M to win this battle.

After an initial foray into 3M that netted me a 13.4% return I actually initiated my second position in 3M in late February and have been pretty happy about the purchase thus far. I will only purchase shares if 3M gets below $178, because I believe that is where it offers additional value. I've selected $178 because it is the middle of the stock's 52-week range.

I swapped out of Diageo (NYSE:DEO) in favor of 3M during the 2017 first-quarter portfolio change-out because I ended up turning a profit in the name (4.6%, or 11.8% annualized) and wanted to lock in those profits. So far I have made some gains on the swap. For now, here is a chart to compare how 3M and Diageo have fared against each other and the S&P 500 since I swapped the names.

Source: Google Finance

At the end of the day, it only matters what a stock has done for one's portfolio. For me, 3M is one of my smaller positions and has done decent, as I'm up 1.5% on the name, while it occupies roughly 3.7% of my portfolio. I continue to believe in the name because it still has dividend growth potential. I own the stock for the dividend growth portion of my portfolio, and I will continue to hold onto the stock for now.

I am up 17.2% since the inception of my portfolio, while the S&P 500 is up 13.3%. For 2017 my portfolio is up 6.7% while the market is up 5.2%. Below is a quick glance of my portfolio and how each position therein is performing. Thanks for reading, and I look forward to your comments.

Company

Ticker

% change incl. DIV

% of Portfolio

Facebook, Inc.

(NASDAQ:FB)

15.8%

9.8%

AbbVie Inc.

(NYSE:ABBV)

12.0%

4.1%

PulteGroup, Inc.

(NYSE:PHM)

5.9%

3.9%

3M Company

1.5%

3.7%

Wyndham Worldwide Corporation

(NYSE:WYN)

1.1%

3.7%

SEI Investments Company

(NASDAQ:SEIC)

0.0%

7.3%

General Electric Company

-1.7%

8.1%

Silver Wheaton Corp.

(SLW)

-3.9%

10.3%

Valero Energy Corporation

(NYSE:VLO)

-4.9%

3.5%

O'Reilly Automotive, Inc.

(NASDAQ:ORLY)

-6.4%

4.1%

VFC MAY 19 2017 52.50 PUT

(NYSE:VFC)

-16.5%

0.5%

Gilead Sciences Inc.

(NASDAQ:GILD)

-17.1%

18.8%

Cash

$

22.25%

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am/we are long MMM.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:

Expand
Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here