Shares of industrial conglomerate 3M (MMM 0.83%) are down by more than a third from their 2018 highs. That's set up an interesting situation for long-term investors focused on dividends. Here are some of the key pros and cons you need to think about before making a final call on whether to invest in this industrial conglomerate.

1. The price decline

3M's stock price peaked in early 2018 and is now down by around 36%. Over that same span, the S&P 500 index is up 20% and the company's industrial peers, using Industrial Select Sector SPDR ETF as a proxy, have lost about 4%. Put simply, 3M is underperforming the broader market and its sector.   

A man writing the word dividends

Image source: Getty Images.

There are, of course, reasons for the laggard performance. For example, a decade ago the company's 10-year average revenue growth was in the mid-single digits, with average earnings growth in the high-single digits. By 2019, the last full year of performance, those numbers had fallen to the low-single digits on long-term revenue growth and the mid-single digits for earnings growth. Management has been working to cut costs and rev up its growth, but the impact of COVID-19 has waylaid some of those plans, at least temporarily.

Also, the company is facing litigation over some of its products and production facilities. This is a hard-to-quantify issue and the legal battle has been going on for many years at this point. Management is working to deal with the issue, but there's no good way to fast-track this process. The final costs could run in the billions of dollars. However, with a market cap of more than $90 billion, 3M is no small fry. It can likely handle a sizable negative outcome here and still survive. Some fear is that the dividend might get cut along the way to a resolution, but history suggests that 3M will work hard to protect its dividend (see the next point). This is a wild card that you have to be able to handle, and be willing to monitor, if you decide to buy shares of 3M.

2. The dividend and yield

The drop has lifted 3M's yield to roughly 3.6%. That's at the high end of its historical range. Using dividend yield as a rough gauge for valuation, this suggests that the stock is pretty cheap today. In fact, the yield is also high relative to the average industrial stock (Industrial Select Sector SPDR ETF sports a yield of just 2%) and the S&P 500 (a roughly 1.7% yield), too. In addition to hinting at a value opportunity, the relatively high yield should probably be pretty enticing to dividend-focused investors.

That attractiveness is enhanced by 3M's impressive dividend history. The company has increased its dividend annually for more than 60 consecutive years. That's a simply incredible run and shows a massive commitment to returning value to investors via dividends through both good and bad markets. The most recent increase came in February, so the streak is still very much alive despite COVID-19.  

3. A mixed portfolio

3M's business, meanwhile, is fairly diversified. The company breaks things up into four segments: safety and industrial, transportation and electronics, healthcare, and consumer. Underneath those broad groupings, meanwhile, are more than two dozen different businesses. It operates in over 70 countries around the world with about 60% of its top line derived from outside of the United States. There is a huge amount of diversification in the mix here.  

4. Research is key

One of the most interesting things about 3M is its focus on research and development. It has a long history of creating new products and then using the underlying technology in other areas of its business -- spreading the wealth, if you will. Over the trailing 12 months, 3M has spent around 6% of revenue on research and development, or nearly $2 billion. If the company can come close to matching its successful history with R&D, it should have a bright future ahead.

MMM R&D to Revenue (TTM) Chart

MMM R&D to Revenue (TTM) data by YCharts.

In fact, based on the company's long-term history of innovation, it's likely that its R&D efforts will help it get growth moving in the right direction again. However, given its size, it probably won't turn into a super high-growth company. Slow and steady is more likely, with ups and downs along the way based on economic activity.   

5. COVID-19

All of those positives aside, there's no way to overlook that 3M is getting hit hard by the global economic impact of COVID-19. Sales were down nearly 12% in the second quarter, with adjusted earnings per share lower by about 16.5%. Revenue fell in each of its four divisions, despite the fact that demand for 3M's health and safety equipment has been high. But this isn't something that's unique to 3M; most of its peers are facing similar hardships. So this is a worry that investors need to think about, but not one that should necessarily be held against 3M specifically. In fact, if you believe that the world will eventually get beyond COVID-19, this is probably more of an opportunity than a threat.  

The final call

3M has a storied history, especially on the dividend front, and it looks relatively cheap today. However, it comes with some baggage, which explains the poor stock performance lately. For long-term investors, however, the positives here probably outweigh the negatives. That said, you'll need to have the stomach to read some bad press on the legal front and still hold on to your shares. If that doesn't sound like something you can do, then 3M isn't for you. If you have that kind of fortitude, however, now could be a good time to pick up shares of this relatively high-yielding industrial giant.