In this segment from the MarketFoolery podcast, host Chris Hill, Jim Mueller of Stock Advisor and Motley Fool Options, and David Kretzmann of Motley Fool Rule Breakers and Supernova reply to an email from a fan looking for a bit of insight on a major company that doesn't get a ton of coverage: 3M (NYSE:MMM).
Good question. Because while it may at first blush appear to be a boring industrial player, its performance and business tactics belie that bland image. Still, is any company a truly hold-forever stock? The guys consider some candidates.
A full transcript follows the video.
This video was recorded on Oct. 18, 2017.
Chris Hill: I don't know this person's name, it was simply firstname.lastname@example.org. "Would you guys recommend 3M as a buy-and-hold-forever stock?" 3M, is it a Dividend Aristocrat?
David Kretzmann: I think it is.
Hill: It's pretty darn close if it's not already. But 3M is one of those boring stocks that also does really well. Just over the past decade, it's more than doubled the market's performance. Probably best known for Post-it notes, although they do --
Kretzmann: Scotch tape.
Hill: Scotch tape, so many different things. I don't know if it's a buy and hold forever, but let me it throw to you guys. Jim, what do you think?
Jim Mueller: 3M, they're very big in the research-and-development field. And I think they make it a point of having a third to a half of their sales from products that they've developed and launched in the last few years. So they're very dynamic. They're just not resting on their lawyers -- their laurels, sorry. Well, not their lawyers, either.
Hill: Every company of that size is resting on their lawyers to one degree or another.
Mueller: Of having Post-it notes. I think the way the question is framed, buy and hold forever, I don't think any company is a buy and hold forever, and never sell. You do have the stories of buy and hold for years and years and you turn a few thousand dollars into a few million dollars. That's fantastic, and I'm hoping to do that with Netflix myself. But, there are times when it makes sense to sell a company. 3M is a decent candidate. I have another company in mind -- Rollins. That's not familiar under that name, but if I say Orkin, you'll recognize the company.
Hill: That's right.
Mueller: They're the pest-control company, with Orkin and several other brands. One of the great lines their CEO says is cockroaches don't read The Wall Street Journal. So by that he means, it's a very recession-resistant company. They've grown both revenue and earnings year of year on quarters for, I think, 45 consecutive quarters now.
Hill: So, the opposite of IBM.
Mueller: [laughs] Right.
Kretzmann: That's the direction to be going.
Mueller: They raised their dividend, they have a 1.2% yield, and they've raised the dividend for 10% or more for the last 14 years. So maybe not a stock aristocrat or Dividend Aristocrat, but they're headed that way.
Hill: Nice. David, what about you? If it's not forever, what's a stock that has a really long horizon in your mind?
Kretzmann: To the point about 3M, I think something that's appealing there is, they're operating on a global scale, they have a lot of repeat sales, and basically, as the economy grows, 3M will very likely grow for a long time.
I think another company that fits into that is Starbucks. They're actually opening 12,000 new stores by 2021. That's their goal. So by that point, if they hit that mark, they would have over 37,000 stores globally. They think one day China will exceed the U.S. in terms of store count. Right now, the U.S. has over 13,000 stores. China has about 1,300 stores. Obviously, a lot of room to grow there. They're getting more into tea, iced beverages, food, a lot of different levels they can pull across an incredible retail restaurant business globally. And it doesn't hurt that caffeine is legally addictive. People keep going back for more.
Mueller: [laughs] Don't I know it.
Kretzmann: And the nice thing, when you look at these kind of companies that you would feel comfortable buying and holding for 20-plus years, ideally longer, is that as they grow and increase cash production over time, the dividend will increase along the way. Or at some point, if a company is not necessarily paying a dividend today or much of a dividend today, that dividend could one day potentially, you could be receiving more cash in the form of a dividend than your original position that you bought. So that can become a very powerful compounding multiplier over time, when the dividend you're receiving exceeds the initial price you paid to buy the stock.
Mueller: If you reinvest those dividends in more shares of the stock.
Kretzmann: That helps, too.
Mueller: Yeah, that's how that works inside of the human lifetime.
Hill: Yeah. Check that box.
Kretzmann: I didn't get one of those. Sysco, not the data company but the food distribution company --
Hill: Sysco with an "S." Not Cisco Systems.
Kretzmann: If you had bought shares of them in 1975 and held them to today, I think the dividends you would be receiving today would be double the price you paid for the stock at that point. Just an incredibly powerful force, when you can find a company like that and hold it over decades, which is obviously what we're all trying to do here. It's a long time horizon, but if you can be patient, hold great companies for a very long time, it can be a really powerful effect.
Mueller: There's lots of companies like that. Coca-Cola has that. Altria -slash- Philip Morris has that. 3M is a great company. I'm not saying don't buy it or don't hold it. But there are others out there, as well.
Hill: Original name is Minnesota Mining and Metal?
Kretzmann: Mining and Minerals, I think.
Mueller: Minnesota Mining and Manufacturing.
Hill: Manufacturing, there you go. You know what? 3M.
Kretzmann: They changed it to that for a reason.
Hill: [laughs] At some point, someone said, you know what? Kind of like, at some point, someone at the National Biscuit Company said, can we just shorten this to Nabisco and move on? And they did.
Chris Hill owns shares of Coca-Cola and Starbucks. David Kretzmann owns shares of Netflix and Starbucks. Jim Mueller, CFA owns shares of 3M, Coca-Cola, Netflix, and Rollins and has the following options: long January 2019 $110 calls on Netflix. The Motley Fool owns shares of and recommends Netflix and Starbucks. The Motley Fool recommends 3M, Cisco Systems, and Rollins. The Motley Fool has a disclosure policy.