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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
By Lisa Springer
NEW YORK (
StreetAuthority) -- Last year was a record year for spinoffs, with deals worth an estimated $116 billion completed. There are even more expected in 2012.
Spinoffs occur when companies want to shed units that are performing poorly, undervalued or unrelated to the main business. Instead of selling to a rival, companies can make a tax-free distribution of the business to investors that often increase shareholder value. In return, the new company is often able to innovate and grow, leading to better returns for shareholders.
Unlike IPOs, which get lots of media attention, spinoffs often fly under the radar. This means investors can buy shares before the spinoff is well-known and often lock in above-average yields.
A case in point is
Exelis(XLS). This $6 billion defense business was spun off from
ITT Corp.(ITT) last year. Exelis hit the ground running in 2011 by delivering 12% growth to $5.4 billion in funded orders and free cash flow of $489 million. Exelis shares currently yield 3.6% and have a 23% payout that provides very comfortable dividend coverage.
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Several big deals were announced last year that will close this year. Here are
three spinoffs that should appeal to dividend investors.
Abbott plans to spin off its $18 billion research-based pharmaceutical operations from its more stable $22 billion medical products business. The parent company, which will sell nutritional products, branded generic drugs, medical devices and diagnostic products, will keep the 124-year-old Abbott name. The spinoff, which has been named
Abbvie, gets to keep a top-selling arthritis drug, Humira, that has almost $9 billion in projected sales, as well as drugs like Lupron, for prostate cancer and Synagis for respiratory disease.
Investors were worried about Abbvie's growth prospects because the patent on Humira expires in 2016, but these fears have eased since the company launched a promising new arthritis drug in February and advanced a new Hepatitis C treatment in clinical trials. Abbott is on track to complete the spinoff by year-end.