Started a small position of 400 shares in Dow Chemical(DOW) at $15.36. Dow is trading close to its 52 week low and has seen its stock drop 25 percent this week alone for the following reasons:
- Dow’s 17.4 billion dollar joint venture with the Kuwaiti government was canceled.
- Dow is on the hook for its $78 per share acquisition of Rohm and Haas.
- Dow may face a debt ratings downgrade if the deal is completed.
- Dow was downgraded today by analysts who placed a $15 price target on the stock.
I think that most of the bad news seems to baked into the stock price. I like the stock at the $15 level and the dividend yield is currently 11.10%. Dow Chemical CEO Andrew Liveris has vowed not to cut the dividend. According to Liveris, “Dow is the only company in the Fortune 200 to have paid its regular quarterly cash dividend without reduction or interruption since 1912. That is 388 consecutive quarters. I have said it before, but I want to say it again, we will not break that streak. Not Dow, not on my watch.”
I still expect a dividend cut and this would likely cost Liveris his job. But even if the dividend is cut in half, Dow’s stock would still yield a healthy 5.5%. The pending bankruptcy of LyondellBasell, Dow’s biggest competitor, should only strengthen Dow’s long term position in the industry. The Rohm & Haas deal should improve operational efficiency and cut costs in the future. If Dow can negotiate a lower price for Rohm & Haas than I expect that it shares would rebound in the near term.
