As investors seek sustainable income in an evolving market landscape, TSI’s own Scott Clayton has identified compelling opportunities in spinoffs for 2025. This analysis applies our comprehensive dividend sustainability framework to companies planning those strategic splits for next year.
While spinoffs often capture headlines for their short-term market impact, our research goes deeper as we examine the fundamental factors that support dividend reliability and growth potential. As a TSI subscriber, you know this already and that’s why you’re reaping the benefits of TSI’s Dividend Sustainability Ratings.
Excerpt from theglobeandmail.com, November 21, 2024.
What are we looking for?
Sustainable dividends from stocks with upcoming spinoffs for 2025.
The screen
Comcast Corp. shares moved up recently on news the U.S. conglomerate will go ahead with the $7-billion spinoff of its NBCUniversal cable TV network business.
Canadian investors reacted similarly when TC Energy Corp. last year announced plans for the now-completed spinoff of its oil pipeline operations, South Bow Corp.
While spinoffs may or may not lead to short term gains, those organizational splits – where companies set up profitable subsidiaries as independent firms and hand out shares to their investors – often outperform comparable stocks in the long term.
What’s more, our TSI analyst team notes spinoff firms frequently have above-average takeover appeal. That’s thanks to their smaller market caps and “pure play” focus. Meanwhile, their former parents also benefit from more-focused operations.
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From a list of U.S. and Canadian firms with spinoffs planned for 2025, we singled out those dividend payers with growth potential as well as takeover appeal. 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 to cover dividends;
- One point if the company’s an industry leader.
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.
Five dividend-paying giants announce 2025 spinoffs
What we found
Our TSI Dividend Sustainability Rating System generated five spinoff stocks primed for growth:
Comcast Corp. (with a 2.9% yield), based in Philadelphia, plans to spin off its NBCUniversal cable TV networks into a separate company. The media and telecommunications giant’s entertainment and news channels include MSNBC, CNBC, USA, Oxygen, E!, Syfy and Golf Channel.
Honeywell International Inc. (2.0%), based in North Carolina, already spun off two subsidiaries to shareholders in 2018 (Resideo Technologies Inc. and Garrett Motion Inc.). Now, it’s spinning off its Advanced Materials business. That division makes products ranging from body armour and pharmaceutical packaging to air-conditioning refrigerants and packaging films.
DuPont de Nemours Inc. (1.9%), headquartered in Wilmington, Delaware, is a global manufacturer of specialty materials, chemicals, agricultural products and more. Earlier this year, and almost five years since its last spinoff, DuPont announced plans to separate into three independent, publicly traded companies. Under the plan, it would spin off its Electronics and Water businesses. The remaining firm will keep the DuPont name and “DD” trading symbol, as well as most of its Industrial Solutions, Safety Solutions and Shelter Solutions businesses.
Unilever plc (3.2%), based in London, is one of the world’s largest makers and sellers of branded and packaged consumer goods. The company is now spinning off its Ice Cream business, which has five of the top 10 selling global ice cream brands including Wall’s, Magnum, and Ben & Jerry’s.
Spectrum Brands Holdings Inc. (2.1%), headquartered in Madison, Wisconsin, is focused on three segments: home/personal care, pet care, and home and garden. The company plans to narrow that focus and spin off its home/personal care (HPC) division.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
