What are we looking for?
Sustainable dividends from stocks with upcoming spinoffs in 2024.
The screen
TC Energy Corp.’s core New Year’s resolution is the spinoff of its oil pipelines division – a major plus for its shareholders.
Spinoffs are new listings in which companies set up profitable subsidiaries as independent firms and hand out new stock to their shareholders. In our experience – and backed by study after study – over the long term, spinoffs and their former parent companies both tend to outperform comparable stocks in the long term.
What’s more, spinoffs frequently have above-average takeover appeal. That’s thanks to smaller market caps and their pure play focus after they are split from their former parents. Meanwhile, those parents also benefit from their own more focused operations.
From a list of U.S. and Canadian firms with upcoming spinoffs, we singled out dividend payers that offer profit growth and takeover potential in 2024 and beyond. 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 and two points for more than five;
- Two points if a company 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 currency exchange 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 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.
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 five spinoff stocks primed for growth: Pipeline operator and energy producer TC Energy Corp. TRP-T, based in Calgary, plans to spin off its oil pipelines business this year into a separate company. Fidelity National Information Services Inc. FIS-N, based in Jacksonville, Fla., is a global provider of banking and payments technology solutions. The company plans to spin off its Merchant Solutions business, which facilitates payments for sellers such as retailers. Headquartered in Illinois, Baxter International Inc.’s BAX-N renal care (kidney-related) products are its largest business. The company plans to spin off this unit this year, with its remaining operations focused on making specialized equipment for hospitals. Global conglomerate 3M Co. MMM-N, with headquarters in Minnesota, sells a wide array of consumer and industrial products with little overlap, so lots of spinoff potential. 3M now plans to spin off its health care division. General Electric Co. GE-N is a high-tech industrial company based in Boston. It aims to spin off its renewable power business this year.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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Scott Clayton