Stock Spin Offs With No Yield

Almost three years ago I wrote a post titled, “Why I Love Stock Spin Offs.” I essentially discussed the typical “unlocked” values stock spin offs can provide for both the parent and offspring stock once the separation occurred. In general, many stock spin offs do offer great value and benefits to shareholders as the newly separated businesses can better focus on their core business or sector more efficiently. Many conglomerates operate businesses in various sectors and thus have an inability to focus their company core competency in the appropriate direction. Of course, these are the spin offs that tend to offer the best return for their shareholders as two smaller yet potentially stronger companies emerge. Sometimes, however, a company may decide to shuttle off a weaker portion of their business into a standalone company which might not always end favorably for the offspring or parent for that matter.

 

The reason I bring up this post I wrote a while back is largely because of my mention in a recent post about my Johnson Controls International plc (JCI) spin off, Adient plc (ADNT), announcing that it will pay its first dividend to shareholders with an expected yield of 1.58%. It got me thinking about all my other spin offs I have received over the years such as, Abbott Laboratories (ABT) spin off of AbbVie Inc. (ABBV), Ingersoll-Rand’s Plc (IR) spin off of Allegion plc (ALLE), Kraft Foods (KFT now KHC) spin off of Mondelez International, Inc. (MDLZ) and the Ventas, Inc. (VTR) spin off of Care Capital Properties, Inc. (CCP) among others.

 

See, the names I just listed all created spin offs that also pay me a dividend. But the question then comes up… What about all the other spin offs I received in my portfolio that do not pay me a dividend? What is to become of those stocks? After all, I am a dividend/income oriented investor and having cash sitting in stock that does not pay me anything on an annual basis can be viewed as a “waste” of funds. Some those names include Kimberly-Clark Corporation’s (KMB) spin off of Halyard Health, Inc. (HYH), Air Products and Chemicals, Inc. (APD) spin off of Versum Materials, Inc. (VSM), Yum! Brands, Inc. (YUM) spin off of Yum China Holdings, Inc. (YUMC) and the HCP, Inc. (HCP) spin off of Quality Care Properties, Inc. (QCP).

 

Now I know a lot of you out there own many of the same stocks I just mentioned and are probably wondering the same thing I am. Should I sell these stocks or remain patient and hope that the boards of these respective companies will vote to initiate a dividend one day? Generally speaking, I’m a very, very patient person and am inclined to just sit tight and wait and wait and wait. Of course, my patience can run out one day but I am inclined to simply stay the course, for now, as almost all my stock spin offs have been positive experiences thus far in terms of capital appreciation after the spin off occurred as well as many of them also paying me a dividend adding to my passive income stream. Just for the record, I currently own approximately $3,200 of non-dividend paying stock in my portfolio. Sometimes I think about what that $3,200 could potentially earn me in a year instead of sitting idle in a non-dividend paying stock.

 

What are your thoughts about stock spin offs in general? Have you kept or sold off your spin offs that either pay or don’t pay dividends? Please let me know below.

 

Disclosure: Long JCI, ADNT, ABT, ABBV, IR, ALLE, KHC, MDLZ, VTR, CCP, KMB, HYH, APD, VSM, YUM, YUMC, HCP, QCP

34 thoughts on “Stock Spin Offs With No Yield

    • Hi DM,

      I think many of us feel the same way and have asked that same question regarding QCP. It’s a REIT after all so I would guess that a distribution will be coming one day. I don’t really know off hand any REITs that pay out zero. Thank you for commenting.

  1. What about capital gains? Have those stocks you own appreciated? I have had only one stock spin off. HPQ … it split into HP Inc and HPE. HP Inc still continued to pay good dividend 4.0%. However, HPE was ~ 1%. Whereas HP earned me regular income, HPE rose quite a bit (went totally berserk). I ended up selling HPE at a huge profit. It would take forever for HP’s dividend to catch up with my capital gains from HPE.

    That being said, it is possible your spin off ends up doing nothing. If you see no future for that particular stock why hold it?
    dividendgeek recently posted…Model Tax-Efficient Portfolios for Short- and Intermediate-Term InvestorsMy Profile

    • Hi dividendgeek,

      Pretty much every spin off I mentioned in this post has appreciated and are well in the black. Interestingly, the only two that are in the red for me are the health REIT spin offs, QCP and CCP. Looks like your one spin off worked out quite nicely in the end. You bring up a good point though about holding on to a stock when the future of that company might not be that bright. To date, I have had mostly positive experiences with stock spin offs which is why I am still inclined to hold on and wait for a dividend distribution. At this point, even token yields would be appreciated. Thank you for sharing your thoughts.

    • Hi MD,

      More often than not, when a long time dividend payer creates a spin off the offspring company also pays a dividend. Of course, it’s not a rule but in general I have found that to be the case. While it’s always tough to see cash sitting in a stock that generates no income the possibility always remains that it too can start contributing to your passive income stream which is why, thus far, I have stayed the course. As always, I appreciate your comment.

  2. Hi DivHut,
    I’ve always sold spin-off companies; sometimes after the spin off occurred and sometimes after it’s been announced. I prefer income over total return, so holding a non-dividend paying stock doesn’t meet my investing objectives. And similarly since most of my investments are in high-yield dividend mutual funds; any spin-off stock will automatically be sold out of the fund because it doesn’t meet the fund’s investment criteria of dividend yield.

    But there’s nothing wrong with holding onto the stock, especially if you believe in the management / long-term view of the company. And the stock certainly isn’t “sitting idle” just because it’s not paying any dividends – the stock would be priced lower if it was paying dividends.

    Avoiding capital gains is another valid reason not to sell. At worst, it just shows that a company’s dividend policy isn’t the only factor in many DGI portfolios as in “I’m a dividend growth investor except I hold these particular non-dividend paying stocks because ”

    Similarly, if Berkshire Hathaway bought your favorite DGI company with a share swap, would you hold onto the BRK shares? It all depends on individual objectives and situation I think, with no right or wrong answer.

    Thanks for raising this interesting question!

    Best wishes,
    -DL
    Dividend Life recently posted…Income Fund Update for February 2017My Profile

    • Hi DL,

      Well said. I guess it comes down to my overall investing objective and patience as well. As you know, I am exclusively a dividend income investor and as such expect every holding of mine, no matter how large or small, to contribute to my passive income stream. For the most part, the offspring companies in my portfolio are paying me dividends and just within the last couple of weeks and days too as I mentioned, not only did ADNT announce a dividend distribution policy but so did VSM. Maybe simply holding on and being patient will pay off as now just a few of my holdings do not pay a dividend. You bring up a good thought provoking point though regarding a BRK buyout via share swap. What would I do??? Thank you for stopping by and commenting.

  3. So far I haven’t had the luck of the stock spin off. I think I would hold it for awhile, just to let management figure it all out. Hopefully after that they would implement a dividend if not I think it wouldn’t be a good fit for me. There’s a couple stocks I have been intrested in. ie shopify and canopy but they both dont pay dividends. I like that payment makes it feel like real money vs just stock appreciation. Also when the market go’s down I think I would be way more tempted selling a non dividend payer vs a stock throwing me money while going down. Of course Capital gains is a factor too tho, maybe I’d keep if that was a issue

    • Hi passivecanadianincome,

      I think it’s interesting that you use the word “luck” to describe a spin off. Some might argue that the offspring company of a spin off does not fit an original thesis for making the investment in the first place and would not necessarily see a spin off as being a lucky event. If anything, it changes the original reason for making the investment. Capital gains aside, I still feel compelled to keep all my spin offs but that sentiment may change if months becomes years without a dividend payment. Thank you for sharing your thoughts.

    • Hi FV,

      Like you, I eagerly await the announcement. It’s a REIT after all and what REIT doesn’t pay a distribution? Thanks for commenting.

  4. Hut –

    Awesome question and am sitting on the one that hasn’t initiated – QCP – however, with being a REIT, I would be very puzzled if they didn’t initiate a dividend! I believe they’re producing some sort of income, but their 10-k hasn’t been filed yet… very interesting. I am staying the course, as you are.

    -Lanny
    Dividend Diplomats recently posted…My Annoying $100 LossMy Profile

    • Hi DD,

      QCP seems to be the most common stock among our investing peers that has not paid a dividend. As you said, it’s a REIT and I also expect them to announce something sooner than later. It’s already been some time since the spin off but I guess I’ll just stay the course with that stock for now. As always, I appreciate the comment.

  5. I personally don’t like spin offs. I only kept my QCP as I received so few shares that trading fees would represent a significant percent. Posting or not paying dividend is not my biggest concern. My problem is that I’ll own companies that I know nothing about. I rather sell them and invest the money into something I’m more comfortable with.
    Roadrunner recently posted…Are European Stocks Cheap?My Profile

    • Hi Roadrunner,

      Trading fees are definitely a concern, especially when a spin off might yield too few shares to make it feasible to sell. I have that problem with my HYH. I guess the only hope with those names is to “wait it out” and hope a dividend announcement would be made so at least those small positions can be build up over time and contribute to your passive income stream. Thank you for sharing your thoughts.

  6. DivHut,

    Spin offs are tricky to get an opinion on for just those reasons you stated. On one hand some are great, on the other some seem to drag and might not reward you with cash as quickly as you would like. YUM and YUMC are a great example, where YUM has reduced its dividend and I am still waiting to see if YUMC hands some cash back.

    Overall I tend to view spin offs as more positive than negative (say 60-40), and when it is positive it is heavily positive (such as the MO – PM – MDLZ – KHC chain).

    Good luck with the decision. I know it is tempting to turn and burn and get that 3k back to cash production, but might be a better choice long term to hold. Too bad there is no accurate fortune teller app!

    – Gremlin
    Dividend Gremlin recently posted…Loyal3 Buys, March 2017My Profile

    • Hi DG,

      Your experience is very similar to mine with regard to spin offs. For the most part I have had positive experiences but not all have been gems to date. Some spin offs have paid dividends immediately while others have taken months or longer to initiate payments. I guess in those cases patience has paid off but it is tough seeing cash sitting in stock not producing me any income. The MO example you give is really one of my main reasons for simply staying the course and holding on to all spin offs as history has shown that stock has produced winner after winner after winner. Create that fortune teller app and retire early 🙂 Thank you for commenting.

  7. For me it really depend on the spinoff company and how I think things will go for them, although usually I try and give the spun off company at least 1 year before making any decisions. Speaking of spinoffs you can take VSM off the list of non payers. They initiated their first dividend at $0.05 this past week.

    • Hi JC,

      Well, for some of my spin offs it’s been more than a year (HYH) and I am still holding. I am patient when it comes to waiting for that dividend to be initiated but when I start to have a collection of non-dividend paying stocks in my portfolio I begin to question whether or not it’s worth holding. I was happy to hear about that VSM declaration. I’ll take it even though it’s a very token amount to be paid it’s still better than zero. Thank you for stopping by and commenting.

    • Hi Doug,

      Looks like most of the comments are pointing to that keyword, “patience,” when it comes to dealing with stock spin offs. I still have not sold any of my spin offs so I guess that’s a testament to my own patience with these holdings. In just the last several weeks though I was happy to hear that two of my spin offs will start paying dividends, ADNT and VSM. That makes my list of non-dividend payers a little smaller but still in existence. As always, I appreciate the comment.

  8. A couple years ago I went through a similar thought process as when I started investing I discarded spinoffs. I gave up Tricon (later YUM), DST and JNS (from KSU) and others. My conclusion was that I missed some home runs (which offset some lackluster performance of others). Nearly all eventually initiated a dividend or were acquired. In most cases, spinoffs are saddled with debt as the price for their freedom and in many cases bank covenants preclude dividend payments until earnings targets are attained. Of the two on your list that I own, YUMC is widely expected to initiate a dividend at some future date and HYH has been rumored to be a takeover target.

    • Hi Charlie,

      I guess my experience has been similar to yours in that most of my spin offs eventually started paying a dividend though none have been acquired yet. I’d like to see some movement with HYH as that spin off yielded some small positions that are not too realistic to sell because of commission costs. Looks like you’ve had quite a few experiences in dealing with spin offs and you do bring up a good point that offspring companies tend to be saddled with debt as a result of their freedom from their parent making them not the strongest stocks in existence. In the meantime I will most likely hold all spin offs. Thank you for sharing your thoughts.

  9. DH,
    One thing I have realized over the years is that it is almost always the right choice to wait before making any moves. It is the same with spending, wait a week or two then you realize you don’t really need the item. Investing is the same. Remove the emotion of the moment and wait and see. I often regret selling a stock a year or two later. Dividends are important but it is not the only thing that makes a great stock ( I do love me some dividends though 🙂 ). Rarely will a stock plunge so dramatically in a week or two that you can’t sell later on. I try to error on the side of ownership. That being said, there certainly are cases where the spun off stock is garbage and as others have said, loaded with debt and low prospects. Interesting topic, thanks for sharing !

    -Brian
    Brian recently posted…Time in the Market – Do you have what it takes ??My Profile

    • Hi Brian,

      You’re probably right in suggesting that waiting is the best thing to do before making any decisions. I do like what you said about trying to, “error on the side of ownership.” Very well said indeed. For me, it just became more apparent as the number of non-dividend paying stocks really started to grow in my portfolio because of all the spin offs I have received in just the last year plus. Collectively seeing many non-income producing assets in my portfolio did not sit well with me which is what prompted this post. Of course, I’m happy that in just the last several weeks though I was happy to hear that two of my spin offs will start paying dividends, ADNT and VSM. That makes my list of non-dividend payers a little smaller but still in existence. For now, I’ll simply stay the course. Thank you for commenting.

  10. I love stock spin off, even when you jump on the bandwagon late, you’d still get 20% or so in appreciation.

    I like the REITs spin off even better, I get to keep the share, and they almost immediately give dividends. win-win situation.

    • Hi Vivianne,

      In general, I have to agree with you that stock spin offs are pretty neat but it’s not a rule that it works out well for both the parent and offspring stock. Sometimes, the offspring never pays a dividend and both stocks can falter after the spin off occurs. Thank you for commenting.

  11. Good post. Spinoffs are generally worth holding onto until market recognizes their potential. The sum of the parts is often greater than the whole in investing. While I am a dividend oriented investor, like you, I also own couple of stocks that don’t pay a dividend just for their growth potential. One example is Alibaba, which I consider to be the Amazon of Asia, and also more profitable as a company. I have a 25% capital gain on it since purchase but will hold on longer as it has room to grow. Once it reaches a fair value in my opinion, I might sell it and buy a good dividend stock to realize a step up in portfolio dividend income.
    Ten Factorial Rocks recently posted…Learning From The Investment Oracle (not the one you think)My Profile

    • Hi TFR,

      Glad you enjoyed this post. I think it’s an interesting topic that really affects everyone of us as over time a spin off or two or more will occur in our portfolios. The question then comes up for income oriented investors is what to do with those spin offs that do not pay a dividend. I do like your statement though, “The sum of the parts is often greater than the whole…,” which usually is almost always true and lends itself to simply staying the course and holding both the parent and offspring stock post spin off. Thank you for sharing your thoughts on non-dividend paying stocks and spin offs.

  12. IF they didn’t pay and no signs of ever paying a dividend, I would sell. Also sell any companies who reduced a dividend as well. Too much opportunity out there to be playing it safe.

    • Hi EL,

      The hard part is having a crystal ball to determine if/when a spin off will pay that dividend. In general, most of my spin offs have paid immediately but there have been those annoying laggards which causes me to call into question about still holding on to those shares. When the total amount of capital not producing income totals several thousand dollars it really makes me wonder what I should be doing. As always, I appreciate your comment.

  13. It depends on how you are invested. If you are invested for cash flow, I would bin them. This is the trap that many capital gain investors eventually find themselves in. Holding stocks that look great on paper forever but providing no yield

    • Hi Jack,

      As you can tell, I’m all about yield/income when it comes to investing so seeing a spin off that does not pay me anything calls into question its place in my portfolio. Of course, the ultimate question then becomes how long to wait and hold those non-yielding spin offs before shuttling them from my portfolio. Some spin offs pay dividends right away and others might take several months to a year or longer to begin paying. Definitely no easy, one size fits all answer. Thank you for commenting.

Leave a Comment

CommentLuv badge