Edgewell Personal Care Company (EPC): A Dividend Focused Spin-off Coming

Over the past few days, I stumbled on an interesting stock that I wanted to share with the community.  While I haven’t shared this habit of mine with the dividend investing community in a long time, I have always monitored spin-offs to try to find potential new dividend stocks that are getting ready to (or have recently) hit the market.  This strategy has worked well for me in the past, as I stumbled on the fact that  Kraft was going to be a dividend paying stock and was lucky enough to catch the company prior to their build up (which occurred long before the announced Heinz-Merger).  So why am I bringing this up?  Well, beginning July 1, a dividend focused spin-off is getting ready to hit the open market and man has it caught my attention.  I wanted to take some time to introduce you to the newly formed Edgewell Personal Care Company.

edgewell-logo

Who is Edgewell Personal Care Company?

In 2014, Energizer Holdings (ENR ) announced the company was spinning-off the Energizer Personal Care subsidiary to a newly formed entity, which would eventually be named Edgewell Personal Care Company (EPC) and begin trading on July 1, 2015.  This announcement in itself was a surprised to me since I was not too familiar with Energizer’s brand portfolio outside of the famous battery line.  I was shocked to not only learn that ENR had a personal brand portfolio, but that the portfolio consisted with some very impressive brand names.  Chances are you have heard and purchased one of their products recently, as the newly formed EPC will consist of the following brands per the company’s website: Schick, Wilkinson Sword, Personna, Edge, Skintimate, Banana Boat, Hawaiian, Playtex, Carefree, Stayfree, O.B, and Wet Ones.  That is one impressive portfolio that should be able to compete with any of the personal products dividend champions out there.

Why am I Interested in Edgewell Personal Care Company?

For the past couple of days, I have read several SEC Filings on Energizer’s investor relations page regarding the spin-off.  The more I read about the company, the more I like it as it is right in my wheel-house.  If you have followed our blog for a while, you would know that I love consumer staple brands. In the initial press release announcing the spin-off, management stated “It [EPC] has a broad portfolio of leading global Wet Shave, Sun and Skin Care, Feminine Care and Infant Care products in attractive categories.  Importantly, Personal Care has strong positions in large and developed markets, and its products hold #1 or #2 positions in their categories.”  Music to my ears, and by reading the brand portfolio above, it is easy to understand the firmness of that statement.

To provide you all with a little background on why I love companies with strong brands, I find these companies fascinating because they provide management with many tools to provide shareholder value.  Heck, having the strong personal care line allowed Energizer the opportunity to spin-off the company and create plenty of new value for their current shareholders, who now proudly own shares in two separate companies.  Value can also be generated organically through continued growth of the brands or even by generating interest of a new acquirer (Kraft is a perfect example of this).  This is my personal belief, but I also think that strong brands can withstand the various consumer cycles that will happen over time.  All companies will hit rough stretches and economies will face recessions, and having brands and products that are engrained in the every day’s consumers life allows these companies to outlast various rough stretches.

So enough about the rough stretches, now let’s focus on the other main reason I am interested in purchasing shares of Edgewell.  Another common theme I have observed through the various SEC filings is management’s commitment to the new shareholders, whether the return is via dividends, share buybacks (which we believe can provide huge returns to dividend investors), or some other avenue.  I found the following sentence in the company’s strategy section in ENR’s Form 10-12b: “[Our strategy is to] Bolster free cash flow to deliver long-term value to all our stakeholders. We believe that the strategies outlined above will allow us to generate significant free cash flow that we can use to deliver enhanced value to shareholders through dividends, share repurchases, reinvestment in our business and future acquisition opportunities.”  What more do I need to say?  Sounds like a phrase you could find on most dividend growth investors’ website.

The unfortunate part about reading the statements is that the company will not provide any specifics regarding the proposed dividend, target dividend yield, targeted payout ratio, or any other metric that would allow us to project the company’s first dividend.   While the details are cloudy, I have a gut feeling that the dividend will at least be higher than the current S&P 500 average yield.  Again, just a guess, but based on management’s tone I have a feeling the yield will be north of the average to mirror the company’s fellow competitors.  I just read too many phrases similar to the one in the preceding paragraph that have led me to believe the yield will be strong.  Since there is a lack of detail surrounding the yield,  I wanted to include the dividend yields of competitors in the industry.  For a reference point, Colgate-Palmolive yields 2.27%, P&G yields 3.32%, Unilever yields ~3% (depending on if you own UN or UL), and Kimberly-Clark yields 3.25%.   The one wild-card item is the fact that Energizer Holdings currently yields only 1.44%.  Again, there are still a lot of questions to be answered regarding the new company’s dividend; however, the one thing that seems certain is that management will emphasize finding ways to reward shareholders one way or the other.

Conclusion

I am not endorsing a buy or sell on the stock at the moment as there are simply too many unknowns here. But what I do want to emphasize is that I am very excited about the newly formed Edgewell Personal Care Company and I cannot wait for the company to hit the markets on July 1st.  This has all the makings of a company that fits my personal investing strategy and portfolio perfectly: a company with strong brands and a focus on rewarding shareholders.  Even though one metric in our stock screener focuses on identifying stocks with a history of increasing dividends, I am willing to overlook that metric because the stock fits so many other boxes of mine.   Hopefully I was able to introduce you all today to a stock that may fit your portfolio as well as mine!

Have you had success purchasing spin-off companies in the past?  Are there other factors that I should consider prior to purchasing the stock next month?  What are your thoughts on the company?  Am I putting too much emphasis on a strong brand portfolio?

-Bert

Source of Photo: www.edgewell.com

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5 thoughts on “Edgewell Personal Care Company (EPC): A Dividend Focused Spin-off Coming

  1. Really good summary of the spinoff! I remember seeing ENR before on one of my random stock screens. I liked the company since they have such a recognizable icon in the Energizer Bunny. But I had no idea that they owned so many good brands on the personal care side of things! I use quite a bit of them myself and am happy with them, which is always a positive sign when I’m looking at investments. I personally tend to avoid buying/adding to spinoffs in the first year or so, just because things can get rocky and I don’t know if I trust management yet. But your rationale is sound, so I wouldn’t feel bad buying, as long as it’s understood it’ll be a speculative play for a bit.

    • Mark,

      Thank you! This really caught me by surprise, I had no clue that Energizer 1. had such an expansive personal care line 2. That it had such great products and brand names or 3. That there was an upcoming spin-off. Perfect storm and great timing of the research, right? Similar to you, I love investing in those stocks that people use everyday and rely on pretty heavily. Shows that the company generates great products and is a great recipe for long-term success, earnings growth, and most importantly, dividend growth. I understand where you are coming from with holding off on investing in spin-offs, but to me this one is unique enough to consider a buy early on. The division has showed strong results as the sales figures are disclosed in each SEC filing. That coupled with the items we have talked about are enough to consider taking a chance on it. I would say this is about as conservative of a spec play as you can have, considering the new company’s product offerings.

      Thanks for stopping by and the great insight. Have a great weekend!

      Bert

  2. Very interesting indeed! I would have never thought that ENR would have a personal care side of business. This sounds like it might be a good buy….one day. I am not too eager to buy into a company with no tangible track record. I’d like to see some numbers before I buy, however you make a good case. As for my experience with spin-offs, I have only dealt with mergers, like Walgreens and Boots. I owned WAG, which turned into WBA. Now it looks like I might have Kraft and Heinz merging. Thanks for an educational post, much appreciated!

    – HMB

    • HMB,

      Are you having a great weekend?? Thanks for stopping by earlier this week. As I mentioned to Mark in the last comment, the company has some sort of a track record as their results are disclosed each quarter. So we know that the unit is performing and generating enough sales that the company found it more valuable to spin it off. But yes, there still are a few question marks. How will management perform? What will their detailed dividend policy be? What payout ratio do they want to maintain? So I can understand where you are coming from wanting to learn more before purchasing. Can’t argue that with you. I love these kind of companies for the examples you mentioned, strong brands over time will create value and find ways to appreciate their stock price and hopefully dividend!

      Enjoy the rest of your weekend.

      Bert

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