The impending stock split isn't the only major factor affecting the company's stock price.
Long-established electronics company Sony (Sony -4.57%) Sony has joined the ranks of companies opting to split their stock. The company announced that it will implement a 5-for-1 stock split starting October 1.
Stock splits, like Sony's, lower the price of individual shares, making them available to a wider range of investors. This creates an incentive to buy Sony stock. But before you decide to invest, you should be aware of one potential drawback.
By buying and holding Sony stock, you end up owning stock in a business you have no intention of owning: Sony's financial services division.
The conglomerate plans to execute a partial spin-off of the division, which will be officially known as Sony Financial Group Inc. (SFGI), in October 2025. Read on to learn more about SFGI and the spin-off, and to help you decide whether to hold shares in Sony and the new company.
Sony spinoff details
Sony's decision to spin off its financial services division makes sense: Some investors urged the separation to allow the company to focus on its core electronics and entertainment business, including the popular PlayStation.
Sony Financial Group President Endo Toshihide explained the decision, saying, “Sony Group is currently striving for further growth with its entertainment business at its core. As such, Sony Financial Group also needs to build a new, unique growth strategy and financial foundation.”
In a spinoff, Sony would pay shareholders a dividend in kind, meaning they would receive shares in the new company in exchange for some of their Sony shares.
It's called a partial spin-off because Sony will retain about 20% ownership of the new company, with shareholders owning the rest. Because the spin-off is more than a year away, details like how many Sony shares will be exchanged are still unclear.
Overview of Sony's Financial Services Division
If you don't live in Japan, SFGI's primary focus market, you may not have come across the business unit, so 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 such as auto insurance, banking, healthcare services for the elderly, and venture capital businesses.
For Sony's fiscal year 2023 (ending March 31, 2024), SFGI is expected to generate revenue of 1.8 trillion yen ($11.7 billion), a significant increase from the previous year's revenue of 889.1 billion yen ($5.9 billion).
Thanks to investments from Sony's life insurance business, SFGI's revenue has nearly doubled from a year ago.Insurance companies typically invest a portion of their customers' premiums in stocks, bonds and other assets.
But while this strategy could lead to impressive gains like those seen in SFGI's fiscal 2023, the opposite could also happen. In fact, the company expects revenue to fall to JPY 910 billion in fiscal 2024. In the first quarter ended June 30, 2024, SFGI reported revenues fell 34% year-over-year to JPY 448.6 billion due to market fluctuations in investments.
SFGI has sought to reduce investment volatility by focusing on long-term government bonds and other investments that can withstand interest rate fluctuations. Its core life insurance business has also grown, with annual premiums collected from new and existing policies increasing steadily each of the past four years.
Another consideration in holding shares in the spinoff company is its intention to pay dividends. SFGI plans to allocate about 40% to 50% of its adjusted net income to dividends, aiming to increase the payout over time. Sony's adjusted net income for fiscal 2023 was 89.4 billion yen ($600 million).
Sony shares decision before spin-off
As for whether you should buy Sony stock, Wall Street thinks acquiring shares in the company is a good idea. The current consensus among Wall Street analysts is a “buy” rating for Sony stock, with a median price target of $112.40.
But if you want to buy shares in the electronics giant, you have to ask yourself whether you also want to own shares in the financial services spinoff. Personally, I'm going to hold off on Sony for now, first to see more details about the spinoff, including how frequently the new company will pay dividends, and then make an informed decision.
Sony's stock price is currently hovering around its 52-week high of $100.88, so there's no need to rush into buying shares. For now, I'll sit on the sidelines and see how the financial services spinoff plays out. In the meantime, I'll keep Sony on my watchlist and encourage you to do the same.
