Lanny’s Recent Purchase – DOW

It’s been a few weeks since my last purchase in April, as I’ve been much more selective with what I’m deploying out there.  I have officially received capital on Monday the 18th and was excited to see what the opening day was going to bring me.  One stock I had a look out for was increasing around $1 per share and I just wasn’t feeling the additional market value appreciation and thought I’d grab them again at some point soon.  However, this company below was also on my list.  I set in a price for a limit order and I kid you not – it dipped down to just a cent over it without triggering the purchase!  BUT… the end of the day occurred and the stock dipped to the price (actually did hit a penny below it) and my limit order triggered and boom, we now have a new purchase… and it’s a familiar one.

DOW logo

DOW – The Stock

Headquartered in Michigan, The Dow Chemical Company (DOW) is as an integrated science and technology company. It is a worldwide manufacturer and supplier of products used primarily as raw materials in the manufacture of customer products and services.  I purchased them wayyyy back in January and I did pay over $7 more now vs back then for them.  You’ll see why throughout the analysis below.  Wonder if it could be the double digit 3 year or 5 year dividend growth rate?  Maybe it’s the middle of the road payout ratio?  Well, let’s find out…

DOW – The Stock Purchase Analysis

Well, we will be using quite a few metrics from the Dividend Diplomat Stock Screener and a few other attributes that I have been tossing in, similar to my analysis at GIS earlier this month.  Let’s see what the screen came with:

1. P/E – Well, based on EPS expectations this year of $2.99, the price to earnings at time of my purchase price, which was $51.00, equates to 17.05.  This compares favorably to the approximate 20 in the S&P as a whole, and MorningStar has shown the industry at approximately 19.  I liked the P/E ratio here given the opportunities out there.  Green Light.

2. Payout Ratio – Ah.. the beloved payout ratio.  Which shows much of their earnings a company pays in the form of dividends to shareholders.  We like it usually above 20% and below 60% when finding a company to invest into – which shows the company likes to retain it’s earnings but also wants to give portions of it back.  With a dividend at $1.68, the payout equals 56%, which is below our threshold.  This still allows room for growth and given the sharebuy back activity, could better the payout ratio.  Green Light.

3. Dividend Growth – One of my favorite topics is the dividend growth rate.  The 5 year dividend growth rate is a staggering 23% and the 3 year dividend growth rate for DOW is at 16.90% , not too bad, I guess.  Joking.  I don’t see the dividend growing at the rate it has, but I can see an over 8% growth later on this year, for some reason, the gut is just telling me that.  This is also higher than my overall dividend growth rate on a weighted average basis – definitely a green light.

4. Dividend Yield – Alright, well this definitely is important, especially as a dividend investor.  The yield at the time of purchase based on the old dividend amount was actually 3.30%.  This is well above the S&P yield of around 2% and is slightly below the weighted average yield of my portfolio or overall yield.  However, #3 is higher than my growth rate, so it hits above one of the 2 dividend growth/dividend yield metrics.  Green light.

5. Dividend 5 year Average – The yield of 3.30% is higher than the 5 ear average of 2.80%, cha ching with a nice check mark here, as you know I do love comparing the yield to the 5 year yield average to find further undervaluation.  Green light

6. Share Buy Back – Of course, Of course, the big news for investors.  Bert came out with a post regarding DOW unlocking shareholder value during the fall last year.  They announced then an additional $5B to their already/current $4.5B share buy back program.  When reviewing the first quarter this year, they stated, “During the first three months of 2015, the Company purchased 10.3 million shares of common stock at a cost of $500 million. At March 31, 2015, approximately $4.5 billion of the share buy-back program authorization remained available for additional repurchases.”  That’s incredible – 10.3M shares poof!  Still having $4.5B left is incredible.

7. Earnings – Well after reading their 10Q filing, DOW actually had an amazing first quarter posting $1.22 earnings per share or 41% of analysts yearly total estimate – aka I think my $2.99 is very conservative at the moment, yes!  However, let’s take a look at the track record of EPS:

Capture

What’s interesting is that 2013 appeared to be an anomaly year, given what I circled up there that had $2,554M in sundry income vs -27 in 2012 and 2014.  Therefore, if I remove that from the equation, would equate EPS to around $1.60 instead of the $3.72.  So if EPS went from $0.71 to $1.60 to $2.91 – then you can see a typical upward trend in earnings per share, I like this and pleases me to see that sales and net income are both increasing.

Stock Purchase Summary

I deployed a total capital amount of $1,281.95, buying 25 shares (with a fee) of DOW and added $42 to my forward looking dividend income.  As I talked amongst comments across the blog community, I wanted to develop more round positions for stocks that I own and didn’t want to have “small” positions anymore, as I had a very small initial purchase of DOW back in the beginning of the year.  This nice purchase also allows me to reach closer and closer to my goals for 2015.  Bert had also wrote an article about the great news DOW released last year – hoping they do it again (Increases + Huge Share Buy Backs)!

What does the community think of this purchase?  I think a valid question is, who doesn’t own this stock?  Or – are you adding to your portfolio positions for JNJ right now?  Like the dividend increase?  Appreciate your thoughts and feedback.  As always – thank you for stopping by and talk soon!  Long live the dividends!

-Lanny

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16 thoughts on “Lanny’s Recent Purchase – DOW

  1. Lanny,
    DOW is a pretty beast company. I used to be long DuPont (DD), and if I were to reenter the basic materials sector (which I want to), I’d go for either DOW or Albermarle (ALB). Just quality products that will be in use for a long time.
    Congrats ton the new income,
    Gremlin

    • Gremlin,

      Thank you – I agree it is a beast company. I like their dividend and share buy back policy. Also, found it quite interesting when I dove just another inch deeper on their earnings from 2013. It’s quite unbalanced when I first glanced, but then I saw the line that stood out.

      Looking forward to big 4th quarter announcements from them, and I think they are like IBM – big on share buy backs and hope there is a more than modest dividend growth to boot! Thanks again for coming by.

      -Lanny

  2. Nice purchase, Lanny. I am still trying to understand the chemical and gas business before I take a plunge – will be looking into this one…its one of those great that ppl tend to forget – part of the DJIA.

    cheers
    R2R

    • RM2R,

      Thanks for coming by Road Map!

      I agree – there is quite a bit to learn and understand without a doubt. Right, big market cap with DOW and also, very well known company, in my eyes. I believe this company was talked about quite a bit for some reason in college (my guess is because it had the same ticker as the damn DOW jones… haha).

      Regardless, looking forward to what this tree brings – fruit is my goal!

      -Lanny

    • Hustler,

      I’m Italian right? Laying bricks is what we do haha. But seriously – I appreciate the motivating comments and words, wish I had enough mortar to catch up to you man! keep it up, we got this!

      -Lanny

  3. Great buy Lanny. I don’t own this stock yet, but DOW was actually my last options trade prior to converting to dividend growth investing. I was able to participate in the recent rise from $44 to $50. I’m planning on adding it to my dividend portfolio at some point.

    Ken

    • Empire,

      Thank you for the post. Last option trade eh? Nice job catching it – guessing it was a call option. Even though the stock price has risen – I took it almost from a pure analysis stand point – solid P/E, Payout, growth, Earnings, share buy back, yield vs historical, etc.. And it all panned out and thought, screw it what am I waiting for? Let’s just pull the trigger. Thanks again!

      -Lanny

    • DivGuy,

      I agree – the payout ratio looks a smidge on the higher end, due to low expected EPS. I think, however, that based on their first quarter results, that earnings aren’t trailing too far behind the projected. I’m curious on what the 2nd Q filing will show, you know?

      Numbers… numbers and more numbers. Sometimes we teeter off of a common sense and few metrics, consistent purchases, as we know, make this game and staying in it. Thanks again DG.

      -Lanny

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