Revered electronics company Sony (NYSE: SONY) has joined the ranks of companies choosing to split their stock. Sony announced a 5-for-1 stock split effective October 1.
Forward stock splits, like Sony’s, lower the price of individual shares, making them accessible to a wider group of investors. This provides an incentive to buy Sony stock. But before you decide to invest, you may want to be aware of a potential downside.
If you buy and hold Sony stock, you will ultimately end up with shares in a company that you may not have any interest in. That company is Sony’s financial services division.
The conglomerate plans to execute a partial spin-off of this segment, officially known as Sony Financial Group, Inc. (SFGI), in October 2025. Read on to learn more about SFGI and the spin-off, so you can decide whether you want shares in Sony and this new company.
Details of Sony’s spin-off
Sony’s decision to spin off its financial services division makes sense. Some investors had urged Sony to do so so the company could focus on its core electronics and entertainment businesses, including 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 as its core. In this context, there is a need for SFG to develop its own new unique growth strategy and financial base.”
When the spin-off takes place, Sony will pay dividends in kind to shareholders. In this case, this means that you will receive shares in the new company in exchange for a portion of the Sony shares you own.
The reason it’s called a partial spinoff is because Sony will retain ownership of about 20% of the new company, while shareholders will own the rest. Some details, such as how many Sony shares will be exchanged, are still unknown, since the spinoff is still more than a year away.
A look at Sony’s financial services division
When the spinoff happens, what would you get as an owner? Unless you live in Japan, the primary market SFGI is targeting, you may not have come across the business units. Here are some details about the organization.
Sony Financial Group began selling life insurance in Japan in 1979. Since then, the division has expanded to include other types of insurance, including auto insurance, banking, elderly health care and a venture capital business.
In Sony’s fiscal year 2023, which ended on March 31, 2024, SFGI generated revenues of 1.8 trillion yen ($11.7 billion), a significant increase from the previous fiscal year’s revenues of 889.1 billion yen ($5.9 billion).
SFGI’s revenues nearly doubled from last year, thanks to investments from Sony’s life insurance business. Insurance companies typically invest a portion of their customers’ premiums in stocks, bonds and other assets.
While this strategy could lead to the impressive profits SFGI saw in fiscal 2023, the opposite could also happen. The company even predicts that revenue will fall to 910 billion yen in fiscal 2024. In the fiscal first quarter, which ended June 30, 2024, SFGI reported a 34% year-on-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 focusing on investments that can withstand interest rate volatility. In addition, its core life insurance business is growing. Annual premiums collected from new and existing policies have increased steadily over the past four years.
Another consideration in owning shares in the spin-off is the intention to pay dividends. SFGI plans to allocate about 40% to 50% of its adjusted net income to dividends, with the goal of increasing the payments over time. It produced 89.4 billion yen ($600 million) in adjusted net income in Sony’s fiscal 2023.
Deciding on Sony shares before the spin-off
As for whether or not to buy Sony stock, Wall Street thinks it’s a good idea to acquire the stock. 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’re going to buy shares in the electronics giant, you need to ask yourself whether you also want to own shares in the financial services spinoff. Personally, I’m holding off on buying Sony shares. I want to see more spinoff details, such as how often the new company will pay dividends, so I can make an informed decision.
With Sony stock currently hovering around its 52-week high of $100.88, there’s no rush to buy shares. For now, I’d rather wait on the sidelines and see how the financial services spinoff plays out. In the meantime, I’m keeping Sony on my watchlist 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 has a catch was originally published by The Motley Fool
