What are we looking for?
Sustainable dividends from spinoff stocks.
We've long known about the value gains associated with "spinoffs" – that's when a company sets up a subsidiary as a separate firm and hands out shares in the new firm to its existing investors. Newell Brands, General Electric Co. and United Technologies Corp. are among the latest companies targeted by activist investors who see spinoffs as the best way to increase shareholder value.
As an added bonus, spinoff companies – especially those with sustainable dividends – have above-average takeover appeal. That's owing to their smaller market caps and their "pure play" focus.
From a list of U.S. and Canadian spinoffs, we singled out dividend-payers offering both profit growth and takeover potential. We then applied our TSI Dividend Sustainability Rating System; it awards points to companies based on these key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
- One point if the company is a leader in its industry.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below-average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated seven spinoff stocks primed for growth.
E. I. du Pont de Nemours & Co. (DuPont) set up its chemical maker Chemours Co. as a separate firm in 2015; Hilton Worldwide Holdings Inc. spun off its real estate investment trust, Park Hotels & Resorts Inc., in January, 2017.
Outsourcing firm Broadridge Financial Solutions Inc. split from its former parent Automatic Data Processing Inc. in 2007; ConocoPhillips Co. set up its refiner Phillips 66 as an independent company in 2012.
Adient PLC, the world's largest car-seat maker, was spun off by Johnson Controls International PLC in 2016.
Yum China Holdings Inc. split from Yum Brands Inc. in 2016, and Conagra Brands Inc. spun off Lamb Weston Holdings Inc., its frozen potato operation, in 2016.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
Select spinoff companies
|Ranking*||Company||Ticker||Market cap (US$Bil)||Share price (US$)||1-Yr Total Return (%)||Div. Yield %||Dividend Sustainability Rating||Points|
|1||Broadridge Financial||BR-N||12.3||106.07||54.6||1.4||Above Average||8|
|2||Park Hotels & Resorts||PK-N||5.6||26.81||1.6||6.4||Average||6|
Source: Dividend Advisor
*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.