The Baxter Deception

A popular holding among Dividend or Dividend Growth Investors (DGI) has been Baxter (BAX).  Over the years it has been prolific in developing and spinning off companies.  Some of its offspring include Allegiance (Cardinal Health), Care-Mark (CVS) and Edwards Life Sciences.  This month, Baxalta (BXLT) was added to this list.

There has been some discussion within the DGI community regarding Baxter’s post spinoff status.  Some chose to sell their stock due to management’s lack of clarity surrounding the future dividend.  Others (myself included) took a wait and see approach.

This week on Tuesday and Wednesday, management finally answered question.  BXLT will pay a $.07 dividend per quarter.  And … drum roll please … BAX will pay $.115 per quarter!  But wait a minute … pre spinoff the quarterly rate was $.52.  Now it’s less than half?

Some like Ryan consider this the price to pay to participate in Baxter’s incubator and you have to be looking for the concept of Total Return rather than Dividend Growth.  Others, being DGI purists, will be selling if they haven’t already due to the dividend cut.

I consider Baxter’s lack of clarity to be deceptive at best.  Recent spinoffs in which I’ve participated maintained the parent company’s dividend.  KMB and ADP both maintained while CDK (ADP) subsequently began paying a dividend of their own (HYH has not (KMB)).

Therefore my decision is to place Baxter in the Penalty Box, joining the likes of Orchids Paper and First Niagara until such time as they redeem themselves or are sold.

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