3M Co. (MMM, Financial) will likely be facing legal and environmental issues for the foreseeable future, which could have a larger-than-expected financial impact on the company. Despite this, there is reason to believe the company can surmount such headwinds.
Further, the company is part of the coveted Dividend Aristocrats index, a select group of companies that have raised their dividend payout for 25 consecutive years, and trades at just under 11 times, which is significantly cheaper than its usual trading range.
Due to the recent market volatility and downturn, 3M has become an attractive option for those looking for a steady income stream and good long-term returns. With such a low price combined with iconic status as a Dividend Aristocrat and a solid performance history, 3M's stock should continue to be highly sought after in the near future.
Lawsuits create an attractive entry point
The attorney general of California has made allegations that 3M and several other companies are releasing pollutants into the natural environment, posing a danger to public health and impacting the state’s natural resources. The claim is for $54 million, which does not seem significant compared to 3M’s balance sheet and market cap. However, another major legal battle that 3M is involved in might prove to be dangerous for the company.
Earlier this year, veterans of the U.S. Army started suing the company for defective earplugs sold between 2003 and 2015 by 3M’s subsidiary, Aearo Technologies. The company is expected to face around 250,000 lawsuits, which could sum up to about $100 billion. 3M is working on restructuring in Chapter 11 bankruptcy court to save itself.
According to corporate solvency expert J.B. Heaton, the company could face bankruptcy if the lawsuits reach a verdict in favor of the plaintiffs. However, Scott Sheridan, CEO of options trading firm Tastyworks, does not think the company will go bankrupt for its mistakes.
3M is looking to pay $240 million for the planned organization in bankruptcy court and keeping around $1.2 billion aside to settle the lawsuits.
As one of the biggest and most established companies in modern times, 3M is no stranger to the pressure of pushing through regulatory changes. While it can be quite daunting, the company has proven time and time again that it will come out on top by utilizing its large enterprise capabilities. It is much the same as Alibaba (BABA, Financial) and Johnson & Johnson (JNJ, Financial), which have suffered through substantial regulatory activity in recent months but are still functioning.
3M is rarely this cheap
In addition to having a prominent place on the S&P 500's list of companies that have paid steady dividends for 25 years or more, 3M has made numerous contributions to the health care, safety and consumer goods industries. Investors know of the great value associated with 3M due to its pedigree and respect. As a result, they are willing to pay ever-growing premiums for the stock, thus offering high returns even during volatile times.
However, since the beginning of the year, the stock has tumbled by double digits as the combination of macroeconomic headwinds and impending legal troubles have taken a toll. In addition, the disappointing outlook 3M unveiled for the year left a lot to be desired.
In October, the company lowered its sales growth forecast for the full fiscal year to between -3.5% and -3.0% from -2.5% to -0.5%. Moreover, organic sales are expected to grow by 1.5% to 2% compared to the prior guidance of 1.5% to 3.5%. Finally, the adjusted earnings per share are expected to be $10.10 to $10.35, down from the previous guidance of $10.30 to $10.80.
3M's market valuation may have taken a hit, but there is an upside - the dividend yield is at its highest, currently sitting at around 4.66%. Amazingly, the company has been steadily increasing its dividend payments for the last 64 years, which not only makes it a Dividend Aristocrat, but a Dividend King. This makes 3M an extremely attractive option for investors looking for stability and dependability even in volatile markets - not to mention offering a juicy return. An investment in the stock could offer security in uncertain times, giving investors a perfect balance between low risk and high returns.
Takeaway
3M has presented rare value amid market volatility. With the stock at its lowest price point in recent history, it could be an opportune time for savvy income investors to consider the multinational conglomerate.
With a strong dividend yield and historically low valuation, 3M's steady performance and relative stability provide a lucrative income stream and a hedge against uncertainty for top-tier earners searching for reliable returns. Its proven track record of beating earnings per share estimates makes 3M a strong choice for those searching for healthy options for their portfolios.
