Dow vs. 3M: Which High-Yield Dow Jones Stock is a Better Buy?

3M Company (MMM) in St. Paul, Minn., is a diversified global manufacturer, technology innovator, and marketer of various products and services. The company operates through the Safety and Industrial; Transportation and Electronics; Health Care; and Consumer segments. In comparison, Midland, Mich.-based Dow Inc. (DOW) is the holding company for The Dow Chemical Company and its subsidiaries. Its plastics, industrial intermediates, coatings, and silicones businesses deliver a range of science-based products and solutions to its customers in various market segments that include packaging, infrastructure, mobility, and consumer care. It operates through Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials & Coatings.

Since the beginning of the year, the benchmark indexes have experienced wild price swings because of high inflation and aggressive central bank interest rate increase forecasts. Russia’s invasion of Ukraine has added to the market’s gyrations. Investing in dividend-yielding stocks is a popular strategy to dodge market volatility because this class of stock can help generate a steady portfolio income stream.

MMM’s four-year average dividend yield is 3.2%, and its current payout translates to a 4.1% yield. DOW’s four-year average dividend yield is 4.5%, and its current payout translates to a 4.7% yield. MMM’s stock has declined 18.3% in price over the past three months, while DOW has gained 9.2%. So, DOW is the clear winner with 5.1% gains year-to-date versus MMM’s 18% decline.

But which is a better stock to buy now? Let’s find out.

Latest Developments

On March 2, 2022, MMM announced that it had completed the sale of its floor products business in Western Europe to Gerflor Group. The sale is part of MMM’s strategic portfolio management, which focuses on leveraging its strengths to create value for customers and generate strong returns for shareholders.

On Jan. 25, 2022, DOW announced an agreement with Locus Performance Ingredients to sell its high-performance sophorolipid biosurfactants in the global home care and personal markets. The ingredients offer a substantial reduction in carbon footprint compared to conventional surfactants. The agreement should enable DOW to strengthen its position in the biosurfactants market.

Recent Financial Results

MMM’s net sales for its fiscal year 2021 increased 9.8% year-over-year to $35.35 billion. The company’s adjusted net income increased 14.9% year-over-year to $5.92 billion. Also, its adjusted EBITDA increased 6% year-over-year to $9.28 billion. And its adjusted EPS came in at $10.12, representing a 14% increase year-over-year.

DOW’s net sales increased 34.1% year-over-year to $14.36 billion. The company’s net income attributable to its common shareholders increased 40.4% year-over-year to $1.73 billion. Also, its EPS came in at $2.32, representing an increase of 40.6% year-over-year. In addition, its non-GAAP operating EBIT increased 114.8% year-over-year to $2.26 billion.

Past and Expected Financial Performance

MMM’s revenue and EBITDA have grown at CAGRs of 2.5% and 1.6%, respectively, over the past three years. Analysts expect MMM’s revenue to increase 3.2% in the current year and 3.7% next year. The company’s EPS is expected to grow 2.8% in the current year and 6.7% next year. And its EPS is expected to grow at a 7.1% rate  per annum over the next five years.

DOW’s revenue and EBITDA have grown at CAGRs of 3.4% and 9.2%, respectively, over the past three years. Analysts expect the company’s revenue to increase 0.4% in the current year and decline 0.7% next year. The company’s EPS is expected to decline 25.5% in the current year and 0.9% next year. And DOW’s EPS is expected to grow at a 56.8% rate per annum over the next five years.

Profitability

DOW’s trailing-12-month revenue is 1.55 times MMM’s. However, MMM is more profitable, with gross profit  and EBITDA margins of 46.89% and 27.45%, respectively, compared to DOW’s 19.61% and 19.96%.

Furthermore, MMM’s 2.42% and 12.58% respective ROCE and ROA are higher than DOW’s 41.04% and 10.02%.

Valuation

In terms of forward EV/S, MMM is currently trading at 2.63x, which is 155.3% higher than DOW’s 1.03x. And MMM’s forward P/S ratio of 2.28x is 185% higher than DOW’s 0.80x.

So, DOW is more affordable.

POWR Ratings

DOW has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast, MMM has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

DOW has an A grade for Value, which is consistent with its 2.16x forward P/B, which is 1% lower than the 2.18x industry average. However, MMM has a C grade for Value, which is in sync with its 4.67x forward P/B, which is 76% higher than the 2.65x industry average.

Among the 88 stocks in the A-rated Chemicals industry, DOW is ranked 14. However, MMM is ranked #51 out of 78 stocks in the B-rated Industrial – Machinery industry.

Beyond what I have stated above, we have also rated the stocks for Growth, Momentum, Stability, Sentiment, and Quality. Click here to view all the DOW ratings. Also, get all the MMM ratings here.

Click here to check out our Industrial Sector Report for 2022

The Winner

Investing in high-yield dividend stocks is an efficient way of side-stepping market volatility by generating regular income. While both MMM and DOW offer good dividend yields, we think it better to bet on DOW now because of its lower valuation and robust financials.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Chemicals industry here. Also, click here to access all the top-rated stocks in the Industrial – Machinery industry.

MMM shares were trading at $146.52 per share on Thursday afternoon, up $1.01 (+0.69%). Year-to-date, MMM has declined -16.72%, versus a -8.07% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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