spinoffs

WINDSTREAM HOLDINGS INC. $10 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 602.8 million; Market cap: $6.0 billion; Price-to-sales ratio: 1.0; Dividend yield: 10.0%; TSINetwork Rating: Average; www.windstream.com) gets 73% of its revenue by selling high-speed Internet and other communication services to 357,700 businesses.

The other 27% comes from selling phone, Internet and video services to 3.2 million residential customers, mainly in the rural U.S.

In July 2014, the company announced that it would transfer its fibre optic and copper networks, some land and buildings to a new real estate investment trust (REIT). Windstream will then lease these assets from the REIT for at least the next 15 years at $650.0 million annually.

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SYMANTEC CORP. $22.15 (Nasdaq symbol SYMC; TSINetwork Rating: Average) (408-517- 8000; www.symantec.com; Shares outstanding: 690.3 million; Market cap: $15.5 billion; Dividend yield: 2.7%) plans to break itself into two publicly traded companies. One will keep the Symantec name and focus on antivirus and security software and services. The other will consist of its information management (IM) operations, which include data backup and recovery software. Symantec aims to hand out shares in the IM business by the end of 2015....

EBAY INC., $54.44, Nasdaq symbol EBAY, plans to spin off its PayPal subsidiary as a separate company. This business processes online transactions, including purchases made through eBay’s auction websites. In the past few years, PayPal has expanded into retail stores and payments through smartphones. It accounts for about 40% of eBay’s revenue. eBay plans to hand out PayPal shares as a special dividend in the second half of 2015. Investors are not liable for capital gains taxes until they sell their new shares....

SYMANTEC CORP. $22.15 (Nasdaq symbol SYMC; TSINetwork Rating: Average) (408-517- 8000; www.symantec.com; Shares outstanding: 690.3 million; Market cap: $15.5 billion; Dividend yield: 2.7%) plans to break itself into two publicly traded companies.

One will keep the Symantec name and focus on antivirus and security software and services. The other will consist of its information management (IM) operations, which include data backup and recovery software.

Symantec aims to hand out shares in the IM business by the end of 2015.

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CONAGRA FOODS INC., $33.61, New York symbol CAG, rose 4% this week after reporting better-than-expected earnings.

In its fiscal 2015 first quarter, which ended August 24, 2014, ConAgra’s earnings form ongoing operations fell 16.6%, to $111.2 million, or $0.25 a share....

I can say without reservation that, in investing, spinoffs are the closest thing you can find to a sure thing. It all comes down to the incentives. In spinoffs, the incentives work in your favour. This is easier to understand if you contrast spinoffs to one of the least desirable investments, new stock issues, where the incentives all work against you. New issues (also known as Initial Public Offerings or IPOs) come to market when it’s a good time for the company or its insiders to sell. That’s not necessarily—and often isn’t—a good time for you to buy. In addition, the underwriting brokerage firms try to spark investor interest in the new issue. They hire public relations firms to get the media interested. They also pay extra commission (double or more the regular rates) to spur their salespeople to sell the new issue....

WINDSTREAM HOLDINGS INC. $11 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 602.7 million; Market cap: $6.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 9.1%; TSINetwork Rating: Average; www.windstream.com) gets 73% of its revenue from high-speed Internet and business telecommunications. It also sells regular phone services, mainly in rural parts of the U.S. The stock jumped 20% after the company announced that it would transfer its fibre-optic and copper networks, along with some land and buildings, to a new real estate investment trust (REIT). The company will then lease these assets from the REIT. Windstream plans to hand out units in the new REIT to its own shareholders in the first quarter of 2015....

From time to time, companies set up their subsidiaries as stand-alone companies and hand out shares in these new businesses as a special dividend. Studies have shown that these new firms, called spinoffs, and their former parents tend to outperform groups of comparable stocks for several years. Here are seven of our recommendations that have either been spun off or are about to set up some of their operations as a separate firm. All of these stocks have done well. That’s not surprising, since the spinoffs have come from well-managed parent companies with long histories of rising profits. MONDELEZ INTERNATIONAL INC. $37 (Nasdaq symbol MDLZ; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.7 billion; Market cap: $62.9 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.5%; TSINetwork Rating: Above Average; www.mondelezinternational.com) took its current form on October 1, 2012, when the old Kraft Foods Inc. broke itself into two publicly traded companies: Mondelez International and Kraft Foods Group....

WINDSTREAM HOLDINGS INC. $11 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 602.7 million; Market cap: $6.6 billion; Price-to-sales ratio: 1.2; Dividend yield: 9.1%; TSINetwork Rating: Average; www.windstream.com) gets 73% of its revenue from high-speed Internet and business telecommunications. It also sells regular phone services, mainly in rural parts of the U.S.

The stock jumped 20% after the company announced that it would transfer its fibre-optic and copper networks, along with some land and buildings, to a new real estate investment trust (REIT). The company will then lease these assets from the REIT.

Windstream plans to hand out units in the new REIT to its own shareholders in the first quarter of 2015.

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We’ve had great success with companies spun off from larger parent firms in the past few years. That’s mainly because spinoffs let both companies focus on their already well-established businesses. As well, a parent will only hand out a subsidiary’s shares to its own investors if it’s confident the spinoff will benefit both companies. Last week, we covered a spinoff that has been successful so far, Mondelez (see the article here). This week we examine the company that spun it off, Kraft Foods. We cover both of these stocks in our advisory on U.S. investing, Wall Street Stock Forecaster....