For every 4 shares of MMM held at the close of business 2024-03-18, shareholders received 1 share of SOLV plus cash in lieu of any fractional shares on 2024-04-01. The Royal Dividends portfolio received 6 shares plus $32.44 in cash. Using a limit order to sell for no less than $69.55 per share, I have sold those 6 shares and closed out the position for 6 x $69.55 = $417.30. The proceeds from this sale plus the cash equals $449.74 and will be treated as dividend income received from MMM for performance purposes.
Solventum Corp [SOLV] looks to me to be a promising global healthcare company. However, my research this morning revolved around two questions:
- Would SOLV be a Dividend King from birth?
- What was the value of the stock at the exact moment it spun-off from MMM?
The answers are ‘No’ and $69.55.
According to the Investors FAQ on SOLV’s website: Solventum’s Board of Directors has not yet determined its dividend policy, and even if Solventum determines that its policy will be to pay a regular dividend, Solventum cannot guarantee the timing, declaration, amount or payment of dividends on its common stock.
Further, S&P Global who maintains several dividend related indices such as that of the Dividend Aristocrats, announced a constituent change stating “3M will remain in the index, and Solventum will be removed from the S&P High Yield Dividend Aristocrats Index prior to the open of trading on Wednesday, April 3, 2024.“
Essentially these two sources tell me that SOLV may be an excellent investment, but it will not join the Empire as a Dividend King anytime soon.
Given I have concluded it should not remain in the portfolio, the question of when to sell the stock became important. I did not wish to sell it at a loss. MMM’s stock price had dropped quite a bit before the market even opened and the same was true for SOLV. In fact, SOLV dropped quite a bit right after market open and just before I got out of bed. TD Ameritrade and Yahoo! Finance both stated that the previous day’s closing price for SOLV was $69.55. Now, today was the first day the stock began trading publicly, so I interpret this to mean that this was the value of the stock upon receipt.
Thankfully, the stock started climbing after the morning sell off and I set up a limit order to exit at the same price I received it at (in theory, $69.55) and it eventually triggered.
So, if 1 share of SOLV began at $69.55, then each share of MMM would be worth 69.55/4 = $17.38751 less. In reality, MMM did not gap down that far, but it came close and since then, other news and market forces have closed the gap further.
Perhaps you received some shares of SOLV. There is absolutely nothing wrong with holding on to those shares. It is not uncommon for the market to initially treat spin-offs with disdain. People don’t like to hold onto stocks they didn’t buy outright, let alone a tiny position a fraction of the size of their other holdings. Hedge funds and other investment vehicles will also dump spin-off shares for the same reason that Royal Dividends has – the new company just doesn’t pass the criteria for remaining in the portfolio. But eventually the stock price settles, and quarterly earnings reports roll in. Then the price starts to take off again. After all, quite often a spin-off is done for that very reason, to allow the business to flourish on its own – getting the attention and resources it deserves and not competing directly with other product lines within a larger organization.
- Not at all interesting is the fact that the cash received in lieu of the half-share of SOLV (2 shares of MMM) was $32.44 and not 2 times this per share value to MMM of $17.3875. Did MMM screw me out of $2.34? Did TD Ameritrade syphon some hidden fee before it landed in my account? Am I incorrect with regard to the $17.3875 figure? A few days later, I can now confirm this number is correct. As for the other questions? Don’t watch this space… ↩︎