Split Ideas: DST Systems and Spark Energy

Focus: Strategies

Neil Macneale III Image Neil Macneale III Editor, 2 for 1 Stock Split

Each month, Neil Macneale — editor of the 2-1-for-1 Stock Split Newsletter — adds on stock to his model portfolio comprised of 30 stocks, which are chosen exclusively from among those companies that have announced splits in the prior month.

DST Systems (DST) — a provider of tech-based information, data and customer communications solutions — has nice valuation numbers, well below average, including PE and price-to-book ratios of 10.5 and 3.2 respectively, all the more notable given the earnings growth numbers are well above average.

The balance sheet is strong, profit margins are excellent, and returns on assets and equity are very good and getting better. DST pays a 1.16% dividend — not great but it has been growing at over 12% a year for a while now.

DST is more volatile than the market, with a Beta of 1.33, but all the other good numbers outweigh this single significant negative metric. We are adding DST to our portfolio.

For full disclosure we note that Neil Macneale Inc. is the index provider to the Stock Split Index Fund (TOFR). This ETF is distributed by ALPS, a wholly-owned subsidiary of DST Systems.

Although we only select one stock each month to add to our portfolio, we would note that Spark Energy (SPKE) — which also announced a stock split — is another interesting company that has announced a split.

Spark operates as a gas and electricity supplier in over 90 service areas across the country. It’s really an energy broker offering choices that didn’t exist a few years ago, such as carbon offsets and all-green energy from renewable sources.

This is a young company but its balance sheet is solid. Growth has been impressive and it’s paying a 3.3% dividend.

Exploiting the push toward green energy seems to be paying off for Spark and I see no reason to believe this trend will be decelerating over the next few years. SPKE would be a second buy recommendation if you are still building your 2 for 1 portfolio toward 30 positions.

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