(FORTUNE Magazine) – What was it that caused those AT&T shares to sprout wings on the day of Bob Allen's big announcement? To the company's 2.3 million shareholders, word of the grand triple spinoff quickly converted into an 11% jump in AT&T stock to $63.75, creating nearly $10 billion in market value in just hours. Allen's bold stroke was clearly a surprise, but in fact he was tapping a genie that has helped many CEOs breathe life into their stocks.

Not all spinoff plans deliver instant price appreciation, but they do tend to pay off for investors over time. Studies demonstrate that the stocks of spun-off businesses, and those of their parent companies, perform smartly in the years after a deal. The dazzling performances charted below come from a study by Patrick Cusatis of Lehman Brothers and James Miles and J. Randall Woolridge of Penn State University. They analyzed 161 spinoffs over a 25-year period ending in 1990. The cumulative returns were robust: Shares of spun-off companies surged 51% in the two years after being distributed, and 76% in three years. More important, the shares generated hearty excess returns, meaning they outran the stock-market performance of their industry peers, by 33 percentage points over three years. Excess returns for parents were strong too.

Much of that lift comes from the altered dynamics of spun-off businesses and their parents. Freed from internal conflicts that often afflict conglomerates, managers in spun-off companies have the authority to get on with the pressing task at hand: making money. And with their own stock price to watch, they have a visible barometer of their success or lack thereof.

The result? Performance revs up. According to the Penn State study, the operating income of spun-off companies and their parents improved significantly after separation. Says Forbes Tuttle, director of research at Hunstrete Group, a consulting firm in New York City that analyzes spinoffs for institutional clients: "It's almost impossible for spinoffs not to do well. They unleash earnings power and allow the businesses to capitalize on inherent strengths."

The biggest performance boost for spinoffs' stocks is exogenous--many such companies get taken over. As pure-play businesses with experienced managers, spinoffs make attractive acquisition targets. Of the 161 spinoffs tracked in the study, 21 were taken over in their first three years. Presumably, that's the happy fate that Bob Allen is quietly wishing upon AT&T's most troubled spinoff, the ailing computer business.

With all this performance juice attributable to spinoffs, shouldn't shareholders be clamoring for--and getting--more of them? Notes G. Bennett Stewart III, senior partner of Stern Stewart & Co., the pioneers of EVA value-based management and accounting: "It is clearly one of the most underutilized value-enhancing strategies in business." Many CEOs, he says, avoid spinoffs because they shrink the parent, and thereby the CEO's prestige. Indeed, the trend among managers is in the opposite direction. Companies in banking, media, and other industries are bulking up through megamergers and pricey acquisitions. Such growth does offer benefits, such as potential cost savings and the safety and predictability of size, but investors cherish these attributes less than raw growth. Says Stewart: "Diversification is something investors can get on their own, so they are not going to reward managers for doing it."

Of course, while spinoffs and deconglomeration usually add life to stocks, some companies might not benefit from a breakup. Says Stewart: "Take GE. Here you have a group of businesses that may not be great in their own right, but the stock has been terrific." Indeed, GE ranks as the second most powerful wealth creator, after Coca-Cola, according to Stern Stewart, and it ranks in the top fifth of the Fortune 500 in ten-year total return to investors. What investors should be guided by, however, is not the exception but the rule.

--John Wyatt