There's no point sugar-coating things: Industrial giant and Dow member 3M (MMM 0.57%) is dealing with hard times these days. The performance of the business isn't the biggest issue, however -- it's the legal cases working through the courts that have investors so upset. Add in the negative sentiment of a bear market and the stock price has plunged, pushing the dividend yield up to more than 5%. That makes 3M look very attractively priced, historically speaking.

3M is dealing with some very real issues

The headline-grabbing news around 3M of late has been the company's efforts to defend itself against lawsuits tied to earplugs it sold to the U.S. military. The company says the earplugs work if used correctly, the people suing it say they were defective. It's a very big case, with 3M winning some important early victories and suffering some early defeats. It is working to shield itself from this case by pushing the division that makes the earplugs into bankruptcy court. But it isn't clear just how beneficial this move will be at this point.

A person speaking to a jury.

Image source: Getty Images.

Here's the problem: That's not the only issue dogging the stock. Management is also working on environmental clean-up efforts in multiple locations around the world. The company has made use of chemicals that don't break down, or at least not quickly, in nature. These chemicals have built up in and around some of its facilities. 3M recognizes that it has to do the cleanup, but it has to work with local governments on the effort. So there's no clear indication on cost just yet. Like the product liability issues, this could be very costly.

So without even looking at 3M's performance, there are some very good reasons that conservative investors might want to avoid this industrial giant. All of this bad news pushed the stock to a very low point even before 2022, and the bear market made investor sentiment even worse. Stock prices move in the opposite direction of dividend yield, leading to 3M's dividend yield recently topping 5%. That's at the top end of the company's historical range spanning back some 30-plus years.

3M is muddling through

To be clear, 3M is not a stock for investors with weak stomachs. The news here is likely to be very ugly for an extended period of time. And there's a risk that the dividend gets cut. In fact, 3M is looking to spin off its healthcare operations, which it could end up using as an excuse to "reset" the dividend payment far lower than it is today. However, with an over-six-decade streak of annual dividend increases behind it, making the company a Dividend King, the company has a proven history of rewarding investors well via regular dividend hikes.

Meanwhile, the actual business is fairly well diversified and is performing as well as can be expected in today's difficult market. The company's divisions include consumer products, transportation and electronics, and safety and industrial. And until the eventual spin off, healthcare remains in the mix as well. In the second quarter, the worst-performing group was consumer products, with an adjusted operating margin of 18.5%. All of the other divisions were in the low-20% space. 

In the third quarter, all of 3M's divisions posted operating margins of 21% or higher. That's pretty solid. And while overall sales dropped, largely because of currency headwinds, organic sales were up in all of its business lines. It wouldn't be fair to say 3M's business is excelling, but it certainly isn't falling apart.

Add to this the fact that 3M has an investment-grade-rated balance sheet and a sizable market cap. That suggests that, even as things get increasingly difficult in the near term, the company should have ample access to capital when it needs it. So material business disruption is unlikely. And if the business can keep putting up solid numbers, 3M should probably be able to muddle through the legal and environmental headwinds. That might be a long process, since litigation is unlikely to be quickly resolved, but for patient investors that may not matter much -- the dividend can be reinvested at attractive stock prices for as long as the stock stays historically cheap.

No slam dunk, but very interesting

To say it again, 3M is not for the faint of heart. But the bear market has put investors into a risk-off mood, which has pushed the industrial giant's shares down sharply and pushed the yield up to historically high levels. This could be an interesting point for long-term investors to jump aboard a company that has a long and storied history of success behind it. If you are a bit of a contrarian, that should be incredibly interesting.