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What are we looking for?

Sustainable dividends from spinoff stocks with strong takeover appeal.

The screen

A takeover such as Elon Musk’s of Twitter Inc. – at a near 40-per-cent premium for shareholders! – invariably spurs a hunt for the next lucrative takeover candidate. Spinoff stocks, with their above-average takeover prospects, are usually in the running.

These new listings – former subsidiaries “spun off” by a parent company to its shareholders as a special dividend – often have the small size, pure-play focus and growth prospects to attract one or several suitors.

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 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.

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, and The TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

U.S. dividend-paying spinoff stocks with takeover potential

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. (US$ Bil.)1Y Ttl. Rtn. (%) Recent Price (US$)
1Dow Inc.DOW-NAbove Average84.249.57.867.45
2Corteva Inc.CTVA-NAbove Average81.041.216.457.22
3Kontoor Brands Inc. KTB-NAbove Average74.62.3-39.940.03
4Lamb Weston Hldgs.LW-NAverage61.59.6-16.966.84
5Bath & Body WorksBBWI-NAverage61.512.6-3.452.79
6nVent Electric PLCNVT-NAverage52.15.611.833.85

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.

Our TSI Dividend Sustainability Rating System generated six spinoff stocks primed for growth – and perhaps takeovers.

In August, 2021, L Brands became two separate firms: Victoria’s Secret & Co. and Ohio-based Bath & Body Works Inc., which sells personal care and beauty products. In 2018, Pentair PLC spun off its maker of stainless steel, aluminum and non-metallic covers for electrical equipment as Minnesota-based nVent Electric PLC. VF Corp. moved in 2019 to spin off Kontoor Brands Inc., headquartered in Greensboro, N.C., and the maker of blue jeans under the Wrangler and Lee labels. In mid-2019, DowDuPont completed the spinoffs of its materials science operations as Michigan-based Dow Inc. and its agriculture business as Corteva Inc., headquartered in Indianapolis. And finally, Conagra Brands Inc. spun off Idaho’s 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.

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