Prosper from EnCana’s Split

Article Excerpt

ENCANA CORP. $89.25 (Toronto symbol ECA; SI Rating: Average) now plans to split itself up into two separate companies — one focusing on natural gas, the other on oil sands and oil refineries. The gas company will keep the EnCana name, while the oil company will assume a new name. Shareholders will receive one new common share in each new company for every EnCana share they hold. Investors will not be liable for capital gains taxes until they sell their new shares. EnCana intends that the initial combined dividends of the two companies will be equivalent to its current annual dividend rate of $1.60 U.S. per share (1.8% yield). EnCana aims to complete the plan in early 2009. Spinoffs and the companies that spin them off usually do better than comparable stocks for years after a spinoff. That’s what we expect in this case. EnCana itself grew out of the spinoff or corporate breakup of another of our long-time favourites, and a safety-conscious recommendation…