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The stocks of spinoff companies have been proven to be great ways of beating the market. The deal can be even sweeter with the double-whammy of stock appreciation and income.
Investing in spinoffs is a unique way to beat the market.
That’s because there’s a lot involved with a spinoff that makes it attractive, including selling by investors who are given shares but who don’t want to own the stock. This puts pressure on the stock price, keeping it artificially low. Stock spinoffs also don’t get the same press coverage as IPOs.
But don’t take our word for it.
The 1993 JPMorgan study called “Restructuring Through Spinoffs”found that spinoffs beat the S&P 500 by 30 percentage points for the first three years. JPMorgan studied spinoffs for the ten years ending 1995 and found that spinoffs outperformed the market by 20 percentage points during the first year-and-a-half.
And Lehman Brothers found that in the five years ending 2005, spinoffs outperformed the market by 45 percentage points during the first two years.
In our own study in March, we profiled AbbVie (NYSE: ABBV)as a uniquely positioned spinoff with a solid dividend yield.
Since then AbbVie shares are up 20% and its dividend yield is still a robust 3.2%.
It has been almost two years since AbbVie spun out of Abbott Labs and shares have beaten the market by exactly 45 percentage points.
But we don’t just like the appeal of stock appreciation. Why not get paid to own these stocks? Here are five other must-own dividend stocks:
Stock Spinoff No. 1: CBS Outdoor Americas (NYSE: CBSO)
CBS Corp. spun off its billboard business as CBS Outdoor back in March. Since then shares of CBS Outdoor are up just 3%. Now that the spinoff is complete, CBS Outdoor plans to convert to a real estate investment trust (REIT).
The company has a fairly simple business model, where it generates cash by selling advertising space on its billboards. This allows it to generate a solid level of cash flow. As a result, CBS Outdoor offers a healthy 4.9% dividend yield.
Now that it’s on its own, CBS Outdoor will be looking to buy up smaller companies in the industry and transform conventional billboards into more profitable digital ones. It also has the opportunity to do that with the older billboards it owns.
Stock Spinoff No. 2: Washington Prime Group (NYSE: WPG)
Simon Property Group spun off its strip-mall business and various small malls as Washington Prime Group in May. It’s a REIT that pays out most of its earnings as dividends. Washington Prime’s dividend yield is just 1.42%, but things got a lot more interesting last month for the company.
Washington Prime has made a major deal to buy up Glimcher Realty Trust for over $2 billion. This adds more high-quality malls and strip malls to its portfolio. Going forward, Washington Prime could look to make even more deals in its niche area.
Stock Spinoff No. 3: Civeo Corp. (NYSE: CVEO)
Civeo is another spinoff offering an enticing dividend yield, coming in at 4.2%. Civeo was spun off from Oil States International in May, and now operates as a pure-play accommodation and lodging business for the oil and gas industry. It has some 20,000 rooms across the United States, Canada and Australia.
However, Civeo’s shares are down 45% since its IPO. This comes as the company decided not to pursue converting to a REIT. Rather, it decided to move its domicile from the United States to Canada. What the market might be missing is that the move isn’t a negative and will put its tax rate 5% lower than a REIT conversion would.
Civeo also has two major activist investors involved in the stock, Greenlight Capital and Jana Partners. The valuation for Civeo is very enticing: it trades at a P/E ratio (price-to-earnings ratio) of just 9.8.
Stock Spinoff No. 4: Navient Corp. (NASDAQ: NAVI)
Navient was spun out of SLM Corp. in April and is up 14.5% since then. It also offers a 3.15% dividend yield, and its P/E ratio is a low 7.3.
Navient is a loan management and asset-recovery business. It has one of the largest portfolios of private and insured education loans. Given the ever-rising demand for college education, student loans are not all that bad a business to be in.
Stock Spinoff No. 5: Starwood Waypoint Residential Trust (NYSE: SWAY)
Starwood Waypoint spun off from Starwood Property Trust at the end of January, and its stock is down 10% since then. It offers a modest 2.2% dividend yield. The REIT is one of the largest owners and operators of single-family rental homes in the United States.
Starwood Waypoint is a big bet on the strong residential real estate rental market, which has been robust and growing. Going forward, Starwood Waypoint will continue buying up distressed properties. Starwood Waypoint should profit from rental income in the near term, and then rising property prices over the long term.
Stock spinoffs are special situations that tend to crush the market. And the stories get even better when they offer dividends. Our five stocks above offer the best of both worlds.
The Wall Street Journal Calls Them “Mega-Dividend Payers.”
We call them “Dividend Al Capones”. Because just like Capone, these American businesses control vast empires and generate extreme amounts of cash. These three companies are so profitable… so rich… they’re able to pay huge dividends. We’re talking big payouts of $428.57, $913.93, and $924.43! If you’d like to tap into this income stream, follow the link below to get our new report. Click here to find out how you can start collecting these big dividends.