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Google vs. 3M

Posted August 29th, 2010 by Andrew Goodman

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In this corner: Founded in 1902 and relocated to Duluth, Minnesota, in 1905, this was an unsuccessful mining company at first, but found early wins in areas like the first waterproof sandpaper and a little invention called masking tape. Now the legendary producer of products like Scotch Transparent Duct Tape, the company has been paying a dividend to its investors since 1916. Product diversification and soft innovation are the company’s hallmarks.

And in this corner: Founded in 1997 in Silicon Valley, Google is the legendary provider of a free voice calling service similar to Skype. It’s also a popular search engine that makes 99% of its revenues on advertising. The company is known for its kickass computer code and its free gourmet food on site. From a one-trick pony, Google has reached a stage of rampant diversification and huge user bases for its many products in less than a decade.

Other than that, the companies have very little in common.

As an investment, both are well known, well research securities with public market valuations above $50 billion. Based on valuation, Google is about 2.5X the size of 3M

Google’s price-to-earnings ratio has reached a lowly 19, in part due to the market’s doubt as to the growth prospects for its primary business, search engine and related online advertising. 3M, a methodical, steady-growth innovator, has a modest P/E ratio of 14.

A crucial difference between the two companies: Google does not, of course, pay a dividend. 3M’s dividend yield is around 2.5%, and it would have been around that every year you’d owned it, and will continue to be so for years to come. That means the company sends you checks — even if you don’t have an AdSense account.

If you like delicious food, Google is a better place to work. As an investment, you might be better off with 3M.

More in the next post, though, on Google’s many-tentacled efforts to break through its perceived “upside limits”.

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