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Wall Street loves a good story, even if it focuses on one topic without taking the time to see the whole picture of the company. That may be the case with the giants of the industry 3M (MMM 1.62%) these days, as its legal and legal problems are of great concern. Of course, these are important issues, but they weigh on the company’s bottom line. Let me explain.
3M is working on some big bad years
3M recently pushed out a division that broke ears. The move is expected to help reduce the costs of a product liability lawsuit the company faces over the headphones and their use by the U.S. military. Before it was all over, the cost of the lawsuit was billions of dollars. As part of the bankruptcy, 3M has already set aside $1 billion to help pay potential claims. While it is hoped that this move will help protect the parent company from further legal liability, it is unclear at this time whether the expected results will be achieved.
Image source: Getty Images.
The liability issue of headphones is the big headline today, but there are other dangers waiting in the wings. In fact, the company has long used chemicals that do not break down easily in the environment. Although it has stopped using many of these chemicals, the areas around some of its factories still need to be cleaned up. This cleanup process is costly and complicated by the need to work with regulators to get cleanup plans approved. The prices here are more open.
So there’s good reason Wall Street is looking at industrial giant 3M with a glass-half-full view right now. But that doesn’t mean the company is a bad investment right now. In fact, negative factors pushed the share price down 50% from the highs seen at the beginning of 2018. The fund is only up 30% in 2022. That pushed the dividend yield to an all-time high, currently at 4.7%.
3M has a solid history with great products
In fact, 3M continues to accumulate earnings to keep its dividend going up every year, something it has done for more than six decades, making it the Division King. It has faced many challenges in the last 60-plus years and still survives. Investors may be hesitant to simply write off the company at this point.
Notably, the company posted year-over-year growth of 2% in the third quarter despite the fact that its respirator mask business is recovering. This same product line, which saw a significant increase in demand at the start of the coronavirus pandemic, was up 1.4 percent in the quarter. The industrial sector is highly cyclical and 3M is facing rising winds, including rising inflation. But organic sales are holding up well.
The power of organic sales is across the entire business. Each of the company’s four divisions topped this measure in the third quarter. And each division also posted 20%-plus adjusted operating margins. So, even though the background is not very good, the global economy is getting stronger and 3M is doing well over time.
3M products are not for the faint of heart
It is not fair to say that 3M is right for all investors because there is a lot of uncertainty and the risks are significant. The fund is ideal for diversified investors who like to hold out during troubled times while the company looks to turn its fortunes around. That said, it is worth noting that the company is changing its health practices, which can be used as an excuse to cut costs.
Still, if history is any guide, 3M has a strong business that can survive today’s winds. In fact, since the depth of funds has decreased, today can be a good time to dip your toes into shares.
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