3M - What is causing the stock's abysmal performance?

quote:

---

Industrial conglomerate 3M's (MMM -0.61%) stock price has steadily declined since peaking in early 2018. Today, the stock is more than 50% removed from its former glory....

The reason? Potentially serious litigation on at least two fronts hangs over the company. The lower share price has pushed the stock's dividend yield to nearly 6%, an all-time high for 3M. Given that 3M has raised its dividend annually for 65 consecutive years, some are questioning whether the streak may soon be broken.

For others, it could be tempting to chase that dividend yield and take a leap of faith in a company that's performed for more than 120 years. But investors should think twice -- as uncertain as the litigation outcomes are right now, they could cast a shadow over investment returns for years to come.

It's bad enough to have one litigation issue to deal with, but 3M has two. It's facing a class action lawsuit from military veterans over hearing loss caused by 3M's allegedly defective earplugs. An initial lawsuit was filed in 2016, in which 3M settled for $9.1 million without admitting liability. But related lawsuits have piled up since then, with more than 200,000 outstanding today.

Bankruptcy is at least a realistic outcome, even if you find it unlikely. Shareholders would likely get wiped out in that scenario. But avoiding bankruptcy isn't necessarily a win either. Hypothetically, assume that 3M ends with $20 billion in total liabilities paid over 20 years ($1 billion annually). That would still create a substantial multi-decade headwind to 3M's earnings growth.

---