3M plans to slash its dividend, ending more than six decades of boosting the payout each year as it enters a new era following the spinoff of its health-care products division.
Starting in May, the manufacturing giant plans to pay a dividend at roughly 40 per cent of its adjusted free cash flow, 3M said in a statement Tuesday (Apr 30) as it reported first-quarter earnings. That compares with a payout that translated to more than 60 per cent of its free cash flow last year.
Departing 3M chief executive officer Mike Roman said in an interview that the decision was a “resetting of our dividend” following the April 1 spinoff of its massive health-care business, now known as Solventum Corp. That business had accounted for about 30 per cent of the company’s free cash flow, he said.
The move breaks with 3M’s legacy as so-called dividend aristocrat. The maker of Post-it notes, industrial adhesives and roofing granules earned that reputation by paying a dividend for more than a century without interruption. And through last year, it increased the payout on a per-share annually for several decades.
The announcement came as 3M reported first-quarter results that were well ahead of Wall Street estimates. Adjusted earnings were US$2.39 per share, topping the US$2.03 average of analyst estimates compiled by Bloomberg. Adjusted operating income margin was 21.9 per cent, also exceeding Wall Street expectations for 19.8 per cent.
3M also initiated a full-year outlook for adjusted earnings of US$6.80 to US$7.30 per share, without contribution from its former health care division.
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The results are Roman’s last as 3M’s CEO. Former L3Harris Technologies CEO William “Bill” Brown will take over chief executive on Wednesday. Roman will continue as 3M’s executive chairman.
Roman’s six-year tenure was tumultuous. The company won praise during the pandemic for accelerating respirator production before it struggled to combat slumping sales, soaring inflation and legal challenges as the economy recovered. Roman plans to stay on as 3M’s executive chair.
Recently, Roman has come under fire for failing to boost 3M’s margins, with the conglomerate’s share price falling by nearly half under his tenure. The company is facing multiple lawsuits over its use of so-called “forever chemicals” in its products and faulty earplugs that are likely to cost it billions in damages.
The health-care spinoff raised nearly US$8 billion in cash, while the company holds 19.9 per cent of Solventum’s common stock, which will be monetised over the next five years.
Analysts have said 3M’s dividend was in line for a cut following the spinoff. Multibillion-dollar legal settlements will also weigh on the company’s cash flows, fuelling expectations for a reduction. BLOOMBERG
