Corteva: Spin-Off in Seeds and Crop Protection

06/28/2019 5:00 am EST


Charles Carlson

Editor, DRIP Investor

Corteva (CTVA) is a new publicly traded company, having been spun off from DowDuPont (DWDP) on June 1, observes Chuck Carlson, dividend reinvestment specialist and editor of DRIP Investor.

Shareholders of DowDuPont received one share of Corteva for every three shares of DowDuPoint held. Corteva represents the agricultural businesses of DowDuPont, including DuPont Crop Protection, DuPont Pioneer, and Dow AgroSciences.

The company’s portfolio of products include seed, crop protection, and digital solutions focused on maximizing productivity. Corteva generated roughly $14 billion in net sales in 2018.

I am a fan of spin-offs, and Corteva is an interesting play in the agricultural space. The company expects to achieve its goal of $1.2 billion in cost synergies by 2021 and is committed to returning significant capital to stockholders through a combination of dividends and share repurchases.

The company plans to pay out dividends amounting to 25% to 35% of net income and anticipates dividends at an annualized rate of $400 million this year. (The fi rm has not yet announced a quarterly dividend rate.) T

The company is looking for 1% to 2% organic growth above the market on a year-over-year basis. Agricultural stocks have a tradition of volatility as a result of a variety of factors, especially weather. Also, firms in the space have been seeing increased litigation stemming from the use of certain chemicals.

However, the long-term growth story is undeniable — 9 billion to 10 billion people will be on the planet by 2050, requiring increased productivity in the agricultural sector to feed the population, which should drive growth at Corteva.

The stock’s limited trading history history makes it difficult to handicap these shares in the short term. Also, it is not unusual for investors who receive spin-off shares to sell them since positions may be rather small or don’t fit with the investment philosophy of the firm. This is especially the case with institutional investors.

Thus, you could see some downward pressure on the stock in the near term. However, for investors who want a pure play in the ag space as a portfolio diversifier, Corteva offers an interesting opportunity and a worthwhile buy in the low $20s.

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