Lanny’s Recent Purchase – DOW

The market hit a nice turn again for the worse, after a earnings have started to be released for companies.  I saw the red, the deep red and I had to put in a nice little limit order on a stock, where it was already down over 6% from a price I recently looked at it… I didn’t really thing it would get lower… lower it did.  Now let’s take a look at the purchase.

Recent Purchase – DOW Chemical Company (DOW)

I wanted to add to my current positions I owned and to start building a very STRONG base into companies that are in my portfolio.  Further, I have a good rule of thumb, similar to others, if your cost basis is down 5% overall and you purchased a stock a few times in the past at higher prices – why not buy more at an even further discount to reduce the cost basis, pick up more shares and more dividend income for less money?  Sounds like a plan to me.  Well, on Friday the 24th, I purchased more DOW Chemical or DOW.  This company was on the most recently posted – July Stock Watch List, which we posted just a few short days ago.  What’s interesting – is the price was $50.01 when I added them to the watch list and then they broke through a $47 threshold aka at least a 6% drop from that price.  Further, the last time I purchased DOW was at $51.00 per share… this purchase price/limit order I placed was for $46.50 – or 8.8% less than my last purchase and 7% less than the watch list article.  I could not pass this up.  Let’s look at the full detail briefly again for DOW: 

Similar to my purchase last week or so into Canadian Imperial, I did a scan of 2 competitors and added them to a quick screening spreadsheet, which you’ll see pasted below, with the focus on our stock screener and other metrics to… take a look at the numbers, let’s take a look at what these guys bring to the table:

DOW

1. Price to Earnings Ratio: Rock solid here, with a below 15 P/E, below the S&P and closely related to the 2 competitors I evaluated.  This showed, that even with a projected-lower EPS, they are trading at a price that shows a sign of being undervalued.  This gets a check mark in my book.

2. Yield: The dividend yield is the highest among the 3 at roughly 3.61% at the time of my purchase.  This is slightly below my overall portfolio yield by 40 basis points (given the sharp decline in values, pushing the yield up recently).  You’ll see that I’m OK with this, given #4 below…

3. Payout Ratio: Smack damn right in the middle, but above BASFY, however – still under 60% and above 20%, therefore, there is plenty of room to keep growing the dividend going forward.

4. Dividend Growth rate: Ah, yes I do love the growth rate.  The last 12 months, DOW has increased their dividend by 13.51%, which we noted in our article about them unlocking big shareholder value.  I don’t expect as high of a dividend growth rate going forward, given a slightly higher payout ratio, however, they traditionally do hover around 50% for a multiple year payout ratio average.  A dividend growth rate of this magnitude is almost twice the size of my own portfolio growth rate – I can dig this one for sure!  Also, much better than the other 2 listed above, especially since BASFY pays out only once per year.

5. The 5 year dividend yield average – Always a fun one to see and given the big decline on Thursday and Friday this week – this separated the 2 even further, a 61 basis point difference!  I was all over this and it shows the better separation amongst the other 2 companies.

DOW just released their earnings for the quarter, beating EPS estimates (crushing them in fact) and reason for the downturn appears to be due to the stronger dollar against where the revenue comes from, the turmoil in the oil market place, as well as the European frenzy with Greece on the fritz.  Here is a quick quote,

“The adjusted net income reported by the company was $1.06 billion, which translates into an adjusted earnings per share (EPS) of $0.91, beating the consensus estimate of $916.45 million or an adjusted EPS of $0.82. The company in the last quarter same year reported adjusted net earnings of $893 million or an adjusted EPS of $0.74.  Despite reporting robust second quarter results, the company has indicted that it has suffered due to decline in crude oil prices. European competitors have relied on expensive oil based fuels in the past. However, the US companies such as Dow relied on cheaper natural gas. With more than 50% decline in the crude oil prices, the spread between natural gas and crude oil prices has fallen significantly, derailing the advantage that US firms held.  As reported by The Wall Street Journal (WSJ), Dow Chemical has indicated that the stronger dollar has also weighed in the company’s results. Dow Chemical derives two thirds of its income from outside of US. With the stronger dollar, the company’s exports become more expensive, causing a decline in quantity demanded and hence translating into lower sales revenue.”

Wow… I can’t believe within the 2 days following the research I performed over DOW for the watch list – more value was unloaded, dropping their price, opening up higher yield and giving more bang for my buck.  This positions rounds me out quite well and I can’t feel any more fortunate about the decline.  Thank you again Mr. Market for taking that downturn for me, always open to that move that you make!

Stock Purchase Summary

I deployed a total capital amount of $976.50, buying 21 shares (with a free trade) of DOW and added $35.28 to my forward looking dividend income.  This officially rounds out my total cost basis into DOW of $3,000 and also hits over $100 in forward dividend income from them – therefore, a few shares per year will be added via dividend reinvestment alone, given that the dividend stays, at a minimum, stagnant.  Adding $35.28 to my annual goal breaks down to an extra, approximately, $2.94 per month that I will start to see the benefits in the 4th quarter dividend (October).  As I said earlier, this purchase also allows me to reach closer and closer to my goals for 2015.

What does everyone think of the purchase?  Our watch list that we posted about this week is showing some great promise – IBM, NSC and CM are all down since we have posted it to show great dividend metrics for us — only probably is — having the capital around to pull the trigger out there.  What do you think of DOW?  Think there is value here?  Would love to see everyone’s stand point, thank you!

-Lanny 

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11 thoughts on “Lanny’s Recent Purchase – DOW

  1. Nice purchase, Lanny. Ive been reading up on Dow Chemical to understand the business a bit better. I just spent looking through their annual reports and investor presentations last week and looks like a solid company. Some really interesting developments coming up too – the partnership with aramco should provide them with some legs in asian market, lots of patents – donno how it compares to competition yet, some great progress in cost cutting in the recent quarters.
    I have added it to my watchlist,as I want to beef up my Basic Materials exposure. Congrats on adding it to your portfolio.

    Best wishes
    R2R

    • R2R,

      Thanks for coming by – appreciate the post. Pumped to hear that you dove into the financial statements – I agree the partnership should be a great impact. They were down again a few days after I bought, so hope that you have capital strapped to grab some. Keep us posted, excited to hear what you end up grabbing next.

      -Lanny

    • FFdividend,

      Keep us posted if you buy DOW shares – looks like you can grab a better opportunity from them right now than I did – nothing better than grabbing more yield for your money, that’s for sure. Thanks again for coming by FF, talk soon.

      -Lanny

  2. Awesome addition Lanny. Keep it up bud. Every purchase feels wonderful. I know. 🙂 I’m happy for your purchase and appreciate you sharing your posts. Thank you and always a pleasure to visit you. Let’s keep at it and be the best we can be. Keep hustling. Cheers.

    • Hustler,

      Thank you very much, every purchase does feel pretty awesome, just knowing how much is going to be added, reinvested, adding some more, cash flow comes again, reinvested, adding more – rinse and repeat.

      Lets Keep at it. One direction we are going – up and forward, no looking down and backward. Foot down DH.

      -Lanny

  3. Lanny,
    Very nice, I like basic materials companies a lot – despite not having one in my accounts. I used to be long DD, but they are quick becoming a circus, which DOW is not. Their true strength is similar to 3M, they are used for so many things, we just have no idea. Enjoy that $$.
    – Gremlin

    • Gremlin,

      Thank you for coming by. You should consider looking at one company! There are a few big players out there and I’m currently looking for one with strong fundamentals, dividend yield above the norm, DGR above my own growth rate and a plan to continue to give back to shareholders in an even way to maintain growth in the company. I like DOW and my position has finally been rounded. Are you considering 3M again?

      -Lanny

      • Right now I am just watching intently. I am considering a host of companies for my next move – MMM, UNP, NSC, DOW, TROW, BEN, and a few others. I should be making a move around mid-August, and depending on who’s stock gets crunched the most that is probably where I will go. Personally, UNP and MMM are my favorites, because it seems an odd day when they are at a generous discount.
        -Gremlin

        • Gremlin,

          That’s quite a list there man! I like it and obviously own a few there. I’ve seen nothing btu great things with TROW and BEN as well so far and over the last few years, thought about purchasing one of them as well. Market sure has been a wild one…

          -Lanny

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