I Added Shares To This Successful Spin-Off Company
Today I added 21 shares of healthcare company Baxter International (BAX) to my Sharebuilder ROTH IRA. I paid $68.10 a share, with a $6.95 commision, for a total transaction cost of $1,437.05. The dividend yield was just over 3%, and the purchase adds $43.68 to my annual income for a new 12-month forward total of $1,530.58. This company is now my largest holding but only for a short while as they have plans to spin-off into two separate businesses later this year.
Baxter International was founded in the 1930’s as the first manufacturer of commercial intravenous (IV) solutions. It has changed and transformed in so many ways over the years to become a current leader in medical products and biopharmaceuticals which it is now splitting up into two companies. Baxter International will remain the medical products company and the new biopharmaceutical company will be called Baxalta. This isn’t a typical dividend growth stock as Baxter’s dividends have only been increasing for 8 years in a row. Currently, there is justified concern with what will happen to the divided after the spin-off later this year. Personally, I’m not concerned because Baxter has a rich history of creating shareholder value with spin-offs and this will be the 4th business spun-off as recently as 1992. In fact, Baxter listed “Executing a number of successful spinoffs over time” as one of it’s “Compelling Strategic Rationale” in last March’s spin-off presentation.
If someone hadn’t touched their shares of Baxter for 22 years they’d own some pretty compelling businesses from all the spin offs, mergers and acquisitions that have happened since. In 1992, Baxter spun off its Caremark unit which would be acquired, spun and merged several times over for you to eventually own a healthy amount of neighborhood retail store CVS Health Corp (CVS). This company has had an amazing earnings run of its own with 11 years of dividend growth. Here’s a recent fast graph:
In 1996, Baxter International spun off its medical products distribution businesses as Allegiance Corporation which would be acquired in 1999 by Cardinal Health (CAH). CAH is still growing strong and has 18 years of dividend raises itself. Here’s a fast graph since the acquisition:
In the year 2000, Baxter spun off its cardiovascular business under the name Edwards Lifesciences (EW). This company is still alive and well and while it doesn’t pay a dividend, its rapid earnings growth speaks for itself as $10,000 in spun-off shares would be worth almost $200,000 today. Here’s a fast graph:
Another important takeaway in reviewing these spin-offs is that Baxter cut its dividend after its 1996 spin-off and had inconsistent payouts through their 2000 spin-off until finally growing the dividends on a steady annual pace since 2007. There’s no question that Baxter’s spin-offs have provided shareholders with great value.
The Baxalta spin-off set to complete this year is reminiscent of Abbott Labs (ABT) spinning-off AbbVie (ABBV) in 2013. A major difference is that Abbott announced right away that both companies would remain committed to dividend growth while Baxter hasn’t mentioned anything about dividends since its announcement. So now, 15 years after it’s last spin-off, we’ll have to wait and see what happens to the dividends of both businesses. They could keep rising, become frozen, or even cut for a while, but I’ll be holding either way based on this company’s solid history of creating shareholder value after spin-offs. Finally I’ll present a fast graph of Baxter International which shows its earnings forecast set to dip upon completing the spin-off. This small dip looks to be yet another successful independent company created by BAX:
What do you think about BAX? What are you buying?