(Bloomberg) -- 3M Co. 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% of its adjusted free cash flow, 3M said in a statement Tuesday as it reported better-than-expected first-quarter earnings. That compares to a payout that translated to more than 60% 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% 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 basis annually for several decades.

“Paying a competitive dividend has been a priority for 3M for more than 100 years,” Roman said on the company’s earnings call. “This will continue to be true.”

The change puts 3M’s dividend in line with its industrial peers, he said.

Despite the reduced payout, investors traded up the shares after the quarterly results suggested the slimmed-down 3M is getting a handle on its shaky financial situation. The stock rose 3.6% as of 9:42 a.m. in New York. 

Adjusted earnings were $2.39 per share in the first three months of the year, topping the $2.03 average of analyst estimates compiled by Bloomberg. Adjusted operating income margin was 21.9%, also exceeding Wall Street expectations for 19.8%.

“The margin performance in Q1 was strong,” Julian Mitchell, a Barclays analyst, said in a note. Sales and adjusted earnings above expectations could also be contributing to the share performance, he said.

3M initiated a full-year outlook for adjusted earnings of $6.80 to $7.30 per share, without contribution from its former health care division.

CEO Change

The results are Roman’s last as 3M’s CEO. Former L3Harris Technologies Inc. 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.

Read More: 3M Names Outsider With M&A Pedigree as CEO in Shake-Up

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 $8 billion in cash, while the company holds 19.9% of Solventum’s common stock, which will be monetized 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, fueling expectations for a reduction.

--With assistance from Anne Cronin.

(Updates with CEO quote from earnings call, shares from fifth paragraph)

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