Last week my dad made the request that I do a review of Dow Chemical. At first glance, Dow seems like a boring option, but they have made a few headlines recently so investigation was actually entertaining. Founded in 1917, Dow Company is one of the longest standing companies in the United States. Dow has successfully operated its business in 5 different segments including agricultural sciences, consumer solutions, infrastructure solutions, performance materials/chemicals and performance plastics. They service a wide range of industries like construction, oil/gas production, pharmaceuticals and automobile part manufacturers. Here is the current company snapshot:
Company Snapshot (Yahoo! Finance Data)
Name: The Dow Chemical Company(as of close of business 12/16/2015)
Ticker: DOW
Current Price: $50.72
52 Week High Price:$57.10
52 Week Low Price: $35.11
Market Capitalization: $58.76B (Large Capital)
Price/Earnings (P/E Ratio): 13.03
Earnings/Share (EPS): $3.89
Dividend: 1.84/year
Industry: Chemicals
Primary Business: Raw Materials Manufacturer and Supplier
The Good
First, let's talk about the dividend. With the high yield dividend of $0.46/quarter, Dow Chemical is probably one of the most consistent income generating stocks available at such a reasonable price. They also boast 635 US patents in 2014, which creates a tremendous climate to have competitive advantage especially in the chemicals industry where customizing materials is key.
Key Note: Patents give companies a way to protect their processes and products so that no one can duplicate what they are doing. Looking at the number of patents a company has can be useful to identify industry first movers/leaders.
Another interesting thing about Dow is the fact they are very aware of how their products impact the environment. They have 2025 Sustainability Goals of which Valuing Nature is the 4th (see news article). Although I wouldn't say I'm super passionate about the environment, I do know God gave us this earth to take care of and any initiative by a company to keep the environment safe for future generations, I'm here for it.
Lastly, Dow Chemical has recently announced a merger with the current competitor, DuPont Chemical, which itself has a pretty healthy balance sheet. The companies combined would have a $130 billion valuation and so much potential to gain a competitive advantage over other chemicals corporations. As a merged company, DowDuPont would dominate in the agriculture, specialty products and material science segments in 2016.
Because I care so much about dividends it's important to note that DuPont currently has a pretty hefty shareholder payout of $0.38/quarter. So combine that with a $0.46/quarter from Dow, can you say kah-ching, kah-ching, hotline bling?
The Bad
The Chemicals industry in general is not a segment that brings in significant year-over-year growth in sales and revenue. Dow Chemical hasn't had a tremendous increase of net income over the last 5 years and the stock price has steadily been within the $35-$60 over the same period. Similarly, DuPont's bottom line and stock price has seen similar consistency. Upon merge completion, I expect the larger research and development team will have more means to innovate and address global problems we are facing especially global warming.
The Ugly
Dow has been pretty active in getting patents approved, but that's not all they have been dealing with recently. Although they don't have any active lawsuits on the table, they did make a settlement back in February with a former employee who uncovered some spending issues and shortly there after got fired. Talk about whistle-blower woes.
If you're looking for a blue chip company to anchor your portfolio, look no further than Dow Chemical. They are really ramping up to make waves in the next 3 years with the initial merger planned for completion late 2016 and then a split 3 ways in late 2017/early 2018.
Until next post...and shoutout to R.M.J. for the company suggestion!!
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