Submitted by QTR's Fringe Finance
As my readers may or may not know, the way that I purchase many of the dividend-paying stocks that I like is on a recurring basis. I wanted to talk today about several names I continue to buy in my dividend portfolio and three specific names I’m adding more aggressively to lately.
For example, this year I have been buying names like the iShares U.S. Aerospace & Defense ETF (ITA), Occidental Petroleum (OXY) and several others mentioned in my 2023 outlook, on a regular recurring basis. Several brokerage houses now allow you to automate investments in this fashion and draw on your bank account to purchases on regular daily, weekly, monthly or quarterly intervals.
For dividend-paying stocks, this takes away a lot of the brain damage of investing for me. This is, in essence, my safe “Buffett”-style portfolio, as opposed my another “main” account I use to trade like a degenerate psychopath that eagerly awaits the destruction of the global financial system and U.S. dollar at any given point in time.
For names I buy on a recurring basis that I want to add exposure to (like this year, I wanted to add more to names like JPM and GS on the regional bank selloff), I simply adjust my recurring purchase amount to a significantly higher amount until I’m satisfied that the ‘value’ has been captured, then I revert them back to their normal investment.
As a refresher, I also pointed out names like Johnson and Johnson (JNJ) at the beginning of the year, a dividend payer that continues to be one of my favorite all around stocks to own for the long-term.
But over the last three weeks I’ve increased my allocations to three names I wanted to point out to my readers.
3M is a dividend staple that has been crushed due to litigation risk related to PFAS chemicals that have been found in ground water. Here’s Barron’s describing the ‘forever chemicals’ risk that 3M faces:
PFAS litigation has been an overhang for years. The settlement is an important market for investors looking to size the total liability.
PFAS, short for per- and polyfluoroalkyl substances, were manufactured in the U.S. from the 1940s through 2000. They are long-lasting, and can continue to harm people’s health, according to the Environmental Protection Agency. States and municipalities are cleaning up sites involved in the manufacture of the chemicals, while governments are pursuing liability suits seeking money from producers.
The obvious trick is handicapping the risk to the $55.2 billion market cap company, which for the time being pays a 6.12% dividend.
Last Friday, however, it was reported that 3M and parties involved in a lawsuit are getting closer to a settlement. The Wall Street Journal reported:
The bellwether case was seen as helping to set a precedent for whether companies like 3M that manufactured the chemicals or firefighting foam containing them should pay billions of dollars to remove them from water systems across the U.S., or whether that cost will be borne by cities and residents.
Judge Richard Gergel, who is overseeing 4,000 foam-related cases in federal court in Charleston, said in an order Monday that 3M and attorneys for Stuart and about 300 other cities that have filed similar lawsuits have been in serious settlement discussions to reach a global resolution of the claims.
He said that the two sides had informed him Sunday night that they believe a binding agreement is achievable in the near future.
A continuance of the trial “is in the interest of all of the parties to this litigation and is in the interest of justice,” the judge wrote.
A 3M spokesman said the two sides “are making material and significant progress toward a resolution of this matter.”
He added: “3M will continue to address other litigation by defending ourselves in court or through negotiated resolutions, all as appropriate.”
While the risk is extremely difficult to quantify, it has (sadly) been my experience over the last few decades that these situations tend to eventually get settled before going to trial, with lawyers on both sides, eager to put the case to rest, and, in the case of the winning party, collect their fees. The risk is rarely existential (see: Boeing and the 737MAX shit show), however, that risk needs to be acknowledged for a company with barely $4 billion on the balance sheet facing settlements in the billions.
In the interim, the company is priced like a risk asset. 3M trades at 11.5x forward estimates and generated $5.86 billion CFFO in the ttm period.
Serious risk remains, as Barron’s notes:
The settlement doesn’t cover personal-injury litigation or litigation from state attorneys general. Still, the market is happy because there is some certainty on part of the liability and because the settlement is nine figures and not 10 figures.
But for me, I’m betting on the 120 year old company with more than 90,000 employees to make its way out of this mess eventually. The rock may be rocky and there’s significant risk in owning the name still, but at 10x earnings for a potentially generational chance to own a dividend compounder that spits off tons of cash, I am ready to dip my feet in. I have been buying at an increased clip since about $120 and will continue to do so the lower it goes, barring no additional risk on the horizon, at which point I may reassess.
Another name I am allocating more capital to is....(GET THE OTHER TWO NAMES HERE).
