What happened

Shares of industrial conglomerate 3M (NYSE:MMM) rose by 13.6% in the first half of 2021, according to data provided by S&P Global Market Intelligence. After a choppy January and February, 3M shares enjoyed a strong rally in the three months through May before cooling off a bit again. Here's all that happened in between.

So what

3M ended 2020 on a pretty strong note despite the COVID-19 pandemic -- its sales were flat at $32.2 billion, but cost cuts from its restructuring efforts helped the company boost its GAAP earnings per share (EPS) by 18%.

More importantly, investors were eagerly awaiting 3M's outlook for 2021, and the company didn't disappoint. It projected 5% to 8% growth in sales and guided for EPS to land in the $9.20 to $9.70 range, versus the $9.25 per share it earned last year, backed by growth across all its segments -- safety and industrial, transportation and electronics, healthcare, and consumer.

A person in a mask analyzing a stock price chart on a computer screen.

Image source: Getty Images.

In February, 3M also put income investors' concerns to rest when it increased its dividend for the 63rd consecutive year. It was only a 1% boost, but it was a well-thought-out move as 3M put cash toward more important uses while maintaining its Dividend King status. Specifically, the company renewed its focus on repaying debt and spending on research and development. To put that in perspective, 3M retired some debt ahead of schedule during the first quarter, and repaid debt worth nearly $5 billion in the 12-month period through the first quarter.

The first quarter, in fact, was a bumper period for 3M as sales grew 9.6% and EPS jumped 23% year over year. However, management kept its full-year guidance unchanged, reflecting a number of headwinds it could face during the year. These include rising costs of raw materials, increased logistics expenses, a possible decline in demand for respirators if the COVID-19 pandemic eases, and potential legal costs related to PFAS water-contamination lawsuits. On top of all that, the global chip shortage is also hurting 3M's sales to the automotive industry.

These concerns are just a few of the reasons why the company's shares have lost ground in recent weeks. Legal concerns, in particular, have persuaded analysts from at least two firms, Credit Suisse and Wolfe Research, to downgrade their ratings on 3M stock this month.

Now what

Despite the cost concerns, several of 3M's end markets -- such as safety, advanced materials, electronics, and medical solutions -- are gathering steam. The company is also generating stronger cash flows than ever and building a sturdier balance sheet, which should help it handle any litigation or settlement expenses. Meanwhile, 3M's commitment to shareholders and its dividend track record suggests the stock could well be one of the cheapest dividend stocks out there right now. Needless to say, 3M's upcoming second-quarter earnings report, due out on July 27, will be worth watching.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.