There have been a number of high-profile spin-offs over the past few years. Spin-offs, a form of divestiture in which a company will separate a subsidiary to form a separate and independent company, might catch investors by surprise. However, the newly separated businesses are often more rapidly growing than their former parent companies.
Investors of the parent company receive shares in the spun-off businesses automatically, but as separate entities these recently spun-off companies deserve attention from all investors.
Refining profits at a remarkable rate
Energy giant ConocoPhillips (NYSE:COP) spun off its refining unit in 2012, now called Phillips 66 (NYSE:PSX), to separate its higher-growth downstream operations.
Phillips 66 (NYSE:PSX), meanwhile, is in high-growth mode. First-quarter earnings doubled from the year-ago period, to $1.4 billion, or $2.23 per share. The company captured strong refining and chemicals margins.
These gushing profits are being effectively flowed through to the company’s shareholders. Phillips 66 (NYSE:PSX) has only paid three quarterly dividends since being spun-off, yet it has increased its payout twice in that short time. The company’s dividend is already 56% higher than its first dividend payment in July 2012.
Twin pharmaceutical heavyweights
Abbott Laboratories (NYSE:ABT) is one of the most highly regarded of the big pharma stocks on the market. It had a multi-decade record of increasing dividends to shareholders and likely ruffled some investor feathers when it decided to spin-off what is now called AbbVie Inc (NYSE:ABBV).
AbbVie houses the company’s blockbuster immunology drug Humira. Investors need to pay closer attention to this newly-formed entity, because Humira loses patent protection in 2016. Until then, AbbVie Inc (NYSE:ABBV) investors are treated to a 3.5% dividend yield and a soaring stock price over the past few months.
Since initially exchanging hands for $35 per share upon being traded as an independent stock early this year, AbbVie Inc (NYSE:ABBV) has rocketed higher to its current level of $46 per share, representing a gain of 30% not even including its generous dividend payout.
Humira is truly the driving force behind AbbVie Inc (NYSE:ABBV)’s success. AbbVie recently reported first-quarter results, which showed revenue of $4.3 billion on the back of 16% global sales growth from Humira.
Meanwhile, the former parent Abbott Laboratories (NYSE:ABT) provided solid results of its own. First quarter adjusted diluted earnings per share came in at the top of the expected range, and the company’s future is bright. Going forward, the company expects to capitalize on emerging market expansion, just as it did in the first quarter, as evidenced by 15% sales growth from emerging economies. Emerging market sales now comprise 40% of the company’s sales.
The bottom line
Spin-offs are often successful in being accretive to shareholders on the basis that the sum of the parts is greater than the whole. This has certainly been true in the case of both Phillips 66 (NYSE:PSX) and AbbVie Inc (NYSE:ABBV), which were spun off from their parent companies and have rocketed higher now that they are independent, publicly traded stocks.
In this situation, investors should determine what they value most from their investments. Income investors who require a high level of yield from their stocks would be better served buying ConocoPhillips (NYSE:COP), which offers a dividend yield of 4.5%. While Phillips 66 (NYSE:PSX) is growing significantly faster than its former parent, its dividend yield is less than half of ConocoPhillips’, and its results are likely to be more volatile.
While AbbVie Inc (NYSE:ABBV) provides a higher dividend yield than its parent Abbott Laboratories (NYSE:ABT) (3.5% versus 1.5%), it is heavily reliant on its major drug Humira.
At this point, it seems that both of the newly spun-off entities are worthy of investment, as they are growing extremely quickly. The parent companies are likely to be more slow-and-steady, which may be appropriate for more conservative investors. In either case, investors in these stocks are likely to enjoy rising profits and dividends for many years to come.
Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Are These Spin-Offs Investment Worthy? originally appeared on Fool.com.
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