Seeking Alpha
Recommended for you:
Long only, contrarian, special situations, value
Profile| Send Message|
( followers)  

It has been awhile since I wrote anything about Dow Chemical (NYSE:DOW) which is not surprising as chemical companies are not the most exciting topic of investment articles. However, Dow's changing business model and robust dividend yield are quite compelling. The company also has some long-term tailwinds and recent positive catalysts. It is a good addition to income portfolios given its 4% yield and has improving earnings prospects as well.

Positives for Dow Chemical:

  • Credit Suisse just came out with an article around North American firms that was positive on Dow Chemical and appeared on Barron's online. Credit Suisse has a $39 price target and an "Outperform" rating on Dow.
  • The International Court of Arbitration ruled Dow is owed $2.4B by Petrochemical Industries of Kuwait although it may take a while before the company can collect.
  • The company is benefiting from low natural gas prices in the United States which is a key feedstock in myriad Dow products. NG prices here are by far the lowest in the developed economies. It has a strategic plan to build more plants on the Gulf Coast to leverage this advantage further.

Four additional reasons value investors should add DOW to their portfolios at under $32 a share:

  1. The stock yields 4% and the company has more than doubled its dividend payout since emerging from the financial crisis in 2009.
  2. Earnings are expected to ramp up in the coming 24 months. The company made under $2 a share in FY2012 but is expected to make $2.35 a share in FY2013 and just under $3 a share in FY2014.
  3. The company continues to shift more of its revenues to specialty chemicals and expansion into agricultural products. These lines have higher margins and are less cyclical than the commodity plastic businesses. Dow Chemical currently gets 60% of its revenues from these specialty products and this ratio should continue to climb.
  4. The stock sells at less than 11x 2014's projected earnings and 9x current operating cash flow.
Source: Dow Chemical: 4% Yield And Improving Earnings Prospects