Venerable electronics firm Sony (NYSE: SONY) has joined the cadre of companies choosing to split their stocks. Sony announced a 5-for-1 stock split to take effect Oct. 1.
Forward stock splits, like Sony's, lower the price of individual shares, making them accessible to a wider pool of investors. This provides an incentive to buy Sony stock. But before deciding to invest, you may want to be aware of one potential drawback.
If you buy and hold Sony shares, you'll eventually end up with stock in a business you may have no interest in owning. That business is Sony's financial services division.
The conglomerate is planning to execute a partial spinoff of this segment, officially known as Sony Financial Group, Inc. (SFGI), in October 2025. Read on to learn more about SFGI and the spinoff to help you assess whether you want shares in Sony and this new company.
Details of Sony's spinoff
Sony's decision to spin off its financial services division makes sense. Some investors urged Sony to do this so the firm could focus on its core electronics and entertainment businesses, which include its popular PlayStation video game console.
Toshihide Endo, CEO of Sony Financial Group, explained the decision by saying, "Sony Group is now racing towards further growth with the entertainment business at its core. In this context, there is a need for SFG to develop its own new unique growth strategy and financial foundation."
When the spinoff happens, Sony will grant shareholders dividends in kind, which in this case means you'll get shares in the new company in exchange for some portion of the Sony stock you own.
The reason it's called a partial spinoff is because Sony will maintain ownership of about 20% of the new company while shareholders will own the rest. Some details, such as how many Sony shares are exchanged, are still unknown, since the spinoff is over a year away.
A look at Sony's financial services division
When the spinoff happens, what would you be gaining ownership of? Unless you live in Japan, the primary market SFGI focuses on, you may not have encountered its business units. So here are some details about the organization.
Sony Financial Group began in 1979 selling life insurance in Japan. Since then, the division expanded to include other types of insurance such as automotive, as well as banking, elderly healthcare services, and a venture capital business.
In Sony's 2023 fiscal year, ended March 31, 2024, SFGI generated revenue of 1.8 trillion yen ($11.7 billion). This was a substantial increase over the previous fiscal year's revenue of 889.1 billion yen ($5.9 billion).
SFGI's revenue nearly doubled year over year because of the investments made by Sony's life insurance business. Insurance companies typically invest a portion of their customer premiums into stocks, bonds, and other assets.
However, while this strategy can lead to the impressive gains seen in SFGI's fiscal 2023, the opposite can happen as well. In fact, the company is forecasting revenue to drop in fiscal 2024 to 910 billion yen. In its fiscal first quarter, ended June 30, 2024, SFGI reported a 34% year-over-year decline in revenue to 448.6 billion yen due to market fluctuations in its investments.
SFGI has worked to reduce volatility in its investments by purchasing long-term government bonds and by focusing on investments that can weather interest rate volatility. In addition, its core life insurance business is growing. The annual premiums collected from new and existing policies have steadily increased annually for the past four years.
Another consideration with owning shares in the spinoff is its intention to pay dividends. SFGI plans to allocate around 40% to 50% of its adjusted net income to dividends, with the goal of increasing payments over time. It produced 89.4 billion yen ($600 million) in adjusted net income in Sony's 2023 fiscal year.
Deciding on Sony stock before the spinoff
As for whether or not to buy Sony shares, Wall Street thinks acquiring the stock is a good idea. The current consensus among Wall Street analysts is a "buy" rating with a median price target of $112.40 for Sony stock.
But if you want to purchase shares in the electronics giant, you have to ask yourself if you also want to own shares in its financial services spinoff. Personally, I plan to wait on Sony stock for now. I want to see more spinoff details first, such as how often the new company's dividends are paid out, so I can make an informed decision.
Given Sony stock currently hovers near its 52-week high of $100.88, there's no rush to buy shares. For now, I'm content to wait on the sidelines and see how its financial services spinoff plays out. In the meantime, I'll keep Sony on my watch list, and recommend you do the same.
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Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Sony's Stock Split Comes With a Catch was originally published by The Motley Fool