Dividend-paying conglomerates with break-up potential that may reward investors
Sustainable dividends from conglomerates well placed to unlock holding company discounts.
Honeywell International Inc. HON-Q shares rose early this week after the industrial conglomerate reiterated plans to split into three independent companies.
The move, spurred by activist investor Elliott Investment Management, should further lift Honeywell's share price and so shrink its 'holding company discount.' That's the tendency for multifaceted conglomerates to trade for less than the total value of their various parts.
Holding companies often see their share prices rise after opting to break themselves up into their constituent businesses. Essentially, the market finds it easier to assess the value of 'pure-play' firms.
We started with our extensive list of dividend-paying Canadian and U.S. companies, before singling out conglomerates offering steady growth prospects – as well as breakup potential. We then applied our TSI Dividend Sustainability Rating System to home in on top dividend payers. Our system awards points to a stock based on key factors:
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.
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.
Our TSI Dividend Sustainability Rating System generated five stocks: Montreal-based Power Corp. of Canada POW-T holds controlling interest in Great-West Lifeco Inc., IGM Financial Inc. and much more.
Calgary-headquartered ATCO Ltd. ACO-X-T owns 52.5 per cent of Canadian Utilities Ltd. CU-T but also ATCO Structures & Logistics and 40 per cent of Neltume Ports; the latter operates 18 ports and related operations in South America.
Honeywell International Inc., based in North Carolina, had already spun off two subsidiaries (Resideo Technologies Inc. and Garrett Motion Inc. GTX-Q) to shareholders in 2018 and now plans to break up even further.
Global conglomerate 3M Co. MMM-N, with headquarters in Minnesota, sells a wide array of products with little overlap and so has a lot of breakup potential. In fact, it spun off its health care unit as Solventum Corp. SOLV-N last year.
Washington-based Danaher Inc. DHR-N has made a number of breakup moves in the past but still has a varied range of businesses well-positioned for hiving off as standalone firms.
We advise investors to do additional research on investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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