Industrial conglomerate 3M's (MMM 0.35%) 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.

Litigation, as far as the eye can see

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.

You don't need a math degree to see how quickly this could add up. 3M has gone to trial 16 times since then, losing 10 cases for a total award of $265 million across 13 plaintiffs. Award amounts can often get reduced on appeal, but even so 200,000 cases can make even a modest per-plaintiff amount add up to a substantial liability to the company.

3M also faces potential liability for its longtime production of PFAS chemicals. These artificial chemicals have the nickname "forever chemicals" because of how long they can last in the environment or people's bloodstream. 3M has used these chemicals in products like Scotchgard and fire-resistant foams. Multiple states are suing 3M for damages caused by PFAS chemicals, alleging contaminated drinking water, damage to property values, and health complications.

The company announced in late 2022 that it will stop manufacturing PFAS chemicals worldwide by 2025, but legal experts believe that this won't protect 3M from liability for past uses. Some estimates for 3M's eventual liability for PFAS have been as high as $30 billion.

Can 3M afford the bill?

I must emphasize that nothing is finalized and probably won't be for a while. That said, it seems pretty realistic that liabilities jump into the multibillion-dollar range due to the vast plaintiff base 3M is up against. Johnson & Johnson just proposed to settle most of its talcum powder-related lawsuits for $8.9 billion, and 3M's plaintiff count is roughly 3 to 4 times higher.

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.

MMM Free Cash Flow Chart

MMM Free Cash Flow data by YCharts

You can see that $1 billion is about a quarter of 3M's free cash flow over the past year. Share repurchases will probably get halted. Investors might also face a dividend cut since the existing dividend payout costs $3.3 billion of cash flow.

The reward doesn't justify the risk

Of course, there's a chance that 3M walks out of all this litigation with an overwhelmingly favorable outcome. But how likely is that? And is the potential upside worth rolling the dice given even the slightest chance of 3M going bankrupt? Litigation doesn't get resolved quickly, meaning these lawsuits could weigh on the stock for years.

In the meantime, that money tied up in the stock could have been invested elsewhere, generating a potentially higher return. Do you want that high dividend yield? There are other stocks with similar dividend yields and no litigation risk. When you add up all the pros and cons, 3M seems like a pretty easy toss into the "too hard" category.