DowDupont: A New Dow DRIP
10/06/2017 5:00 am EST
Of the 30 stocks in the Dow Jones Industrial Average, 26 offer a dividend reinvestment plan; the latest Dow component to join the DRIP party is DowDuPont (DWDP), says Chuck Carlson, editor of DRIP Investor.
The company is the product of the recent merger of Dow Chemical and DuPont. Interestingly, the two companies merged with plans to break up.
Indeed, the new DowDuPont intends to break up into three independent companies that will focus on its various core areas—agriculture, materials science, and specialty products.
The firm has been making adjustments to what businesses get split up and recently said that it would be moving $8 billion in businesses from the materials-science division to the specialty-products division. The materials spin-off will house the legacy Dow operations and be named Dow.
The new Dow will house products aimed at packaging, infrastructure, and consumer care and have roughly $40 billion in annual revenue. The specialty-products business will focus on electronics and imaging, transportation,
construction, and nutrition, with some $20 billion in revenue.
The agriculture business will have about $14 billion in revenue. Quite honestly, I don’t recall a situation where two companies merged with the plans to quickly break up into new companies, and that scenario does make it a bit difficult to handicap this stock.
On the plus side, uncertainty often creates opportunity, and this situation does seem to have a fair amount of uncertainty.
Another wild card is the notion that the breakup into three new companies may have an impact on which companies leave and which remain, if any, in the Dow Jones Industrial Average following the breakup.
Typically, companies booted from the Dow see their shares sell off in the short term due to index investors dumping the stock, although history shows companies that leave the Dow tend to do reasonably well over time.
While part of me wants to see how the breakup goes, another part of me senses that now is a decent time to consider these shares.
There are probably investors staying away from the stock because of the lack of visibility in terms of timing of the breakup and how the three companies will ultimately look at the time of the breakup.
That means there’s probably some interesting value in the stock right now. The good news is that DRIP investors have the ability to buy these shares through the company’s new direct-purchase plan.
DowDuPont’s plan has a minimum initial investment of just $50. Subsequent purchases are a minimum $50. There is a one-time enrollment fee of $10.