In early July, Baxter International split into two companies – Baxter and Baxalta. For every share of legacy Baxter, shareholders received a share of new Baxter (BAX) and a share of new Baxalta (BXLT).
A few readers had asked me about the new dividend payments after a press release from late June indicating that there might be a decrease in dividends. I decided to hang on, until both companies formally announced what their dividend policy will be.
Both companies recently announced dividend cuts effective in September. The new payment for Baxter will be 11.50 cents/quarter, while the payment for Baxalta will be 7 cents/quarter. This totals 18.50 cents/quarter, which is much less than the 52 cents/quarter that legacy Baxter paid to shareholders.
My goal as an investor is to generate a rising stream of income from my dividend growth portfolio. As such, I purchase shares in companies that can afford to and do grow dividends per share over time. I have found that it is easier to forecast and rely upon dividend income, rather than capital gains in the retirement years. Therefore, companies that have cut dividends have no place in my portfolio since they are no longer fitting with my overall goals and objectives that made them a purchase in the first place.
I am going to be selling both Baxter and Baxalta from my taxable accounts – this is over 2/3rds of my stake. The rest is sprinkled between several retirement accounts, so selling would be expensive. Unfortunately, I am unsure why the dividend was cut. It seems as if both companies do not want to take responsibility for the dividend from the legacy company. It is unfortunate that both new companies are unwilling to continue the dividend growth legacy of old Baxter. In contrast, during the Abbott Laboratories spin-off in 2012 - 2013, there was a clear visibility about the dividend policy, and the legacy shareholders saw their dividend income increase. While earnings per share are posed to grow for Baxter and Baxalta and they were adequate to support the dividend payment from legacy Baxter, the new companies have decided that the dividend is not a priority.
I am also considering disposing of the Halyard Heatlh (HYH) shares I received last year from Kimberly Clark's (KMB) spin-off. While overall dividend income was unchanged from that legacy Kimberly Clark (KMB) position, I do not believe Halyard Health will be paying a dividend. Since my goal is to live off dividends, it doesn't make a lot of sense to hold on to a stock which will not help me achieve my goals.
That being said, I might consider initiating a position in either company once/if they approve their first dividend increase.
Full Disclosure: Long BAX and BXLT, ABBV, ABT, GE, BP, VRE, KMB
Relevant Articles:
- Replacing dividend stocks sold
- Dividend Portfolios – concentrate or diversify?
- When to buy back dividend shares that you have previously sold?
- How I manage my dividend portfolio
- Stock Spin-Offs – What Should Dividend Investors do?
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