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Today is Dividend Day.
The series where I teach you 5 things about dividend investing in less than 5 minutes.
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1️⃣ The Spinoff Rule
Do you know about Corporate Spinoffs?
A spinoff is when a large company separates one of its divisions into a brand new, independent business.
When that happens, the newly independent company has one job:
Prove itself to shareholders.
And the fastest way to do that is cash.
To attract serious investors, most spinoffs initiate a dividend almost immediately after listing.
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2️⃣ Spinoffs vs The Market
Wall Street often underestimates spinoffs.
When a spinoff begins trading, many institutional investors who owned the parent company quickly sell the new stock.
They did not choose to own the spinoff and often do not want to analyze or hold a smaller, unfamiliar business.
This selling pressure creates an opportunity.
An academic research has shown that corporate spinoffs have historically outperformed the S&P 500 significantly during the first few years after the separation.
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3️⃣ An Investing Quote
Spinoffs are one of the few places in the market where a good business can trade below its true value simply because investors aren’t paying attention yet.
Investors like Joel Greenblatt built much of their early track record by buying spinoffs before the market recognized their value.
“Spinoffs, and the securities created in the spinoff process, represent one of the most consistently profitable investment opportunities available.”
— Joel Greenblatt
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🚨 Bonus Resource: 10 Lessons from You Can Be A Stock Market Genius 🚨
Joel Greenblatt’s book highlights spinoffs as a great place to find returns.
Get a visual with 10 lessons from it here.
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