Johnson & Johnson (JNJ) recently announced it will be splitting into two companies. This seems to be the trendy thing to do right now. General Electric (GE) and Toshiba (TOSBF) are two other companies of the many that have announced the splitting up the company. In some cases this can be a good thing that will drive shareholder value. Let’s get into what I think about the JNJ split.
The plan is to spinoff off the consumer products portion of the company. The pharmaceutical and medical device portion of the company will remain as JNJ while the consumer products portion will receive a new name. Initial sentiment seems to be good as the stock price rose on the announcement. Since then, the stock price has pulled back a little.
My initial thought when I heard the news is that JNJ is probably doing this to soften the blow from some of the thousands of lawsuits that it faces. Recently, the company formed a subsidiary that contains the lawsuits concerning the talc in the baby powder causing cancer. It immediately filed bankruptcy with this subsidiary. Whether or not this will work to ease the impact of these lawsuits remains to be seen. The splitting of the company could be a way for the company to reduce its risk to these lawsuits. I am not sure about this because I am in no way, shape or form a legal expert. As I said, this was my initial thoughts.
I do see how splitting the company can create shareholder value. Once split off, the consumer products side should grow into a company with a higher PE ratio similar to other companies in the consumer staples sector. I could also see the pharmaceutical and medical device side growing as well.
I am still trying to decide how I feel about the split. JNJ has long been considered a hold forever stock among dividend investors. Does this change that? I have viewed JNJ as among the safest dividend stocks to own. This was in part because it is a big conglomerate. The consumer products side provided stability to compliment the pharmaceutical side which could sometimes be volatile due research and development costs and patents expiring. With the announcement of the split, it is still a buy and hold forever stock?
I am still digesting the news of the split. It definitely is making me think about the company. Over the next year or so I will continue to do more research and refine my thoughts on the split. So what are your thoughts on the announcement of the JNJ split? I would definitely like to hear what others are thinking about this.
On a side note, I have added a Recommended Resources in the menu. It currently is a work in progress. It will contain blogs and YouTube channels that I enjoy as well as some sites that I use. I hope you take the time to check it out.
*Disclaimer – I am not a financial professional. The information shared here should not be considered financial advice. I am just a factory worker sharing my experience as I strive to achieve financial freedom. Before investing or making any financial decision do your own research and due diligence or consider seeking the advice of a financial and/or tax professional.
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6 thoughts on “Thoughts on the JNJ Spinoff”
I’m still kind of in shock about this move. Between IBM, AT&T and now J&J it’s hard to digest everything that’s going on.
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No problem. And thanks for putting my blog on your list!
Definitely a lot going on. I will take a long look at this before reaching a decision.
We have a few quarters to collect the dividends and digest the news. I liked the fact that one side of the business tended to balance out the other. That said, since JNJ is only an ancillary holding my gut says to sell on an uptick and reassess after the spin.
Right now, I think I will hold and see how this plays out. I have to admit that the announcement of the split has given me a lot to think about.