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Is New Factor In Dow Chemical Paying Off Now?

By: Investor's Business Daily
Posted: 1/31/2014 5:49:00 PM
Referenced Stocks: DOW

A new factor can't hurt when scrounging for watch-list candidates among dividend stocks.

The chief advantage to income stocks with new factors is the potential to grow and deliver stock-price gains along with the dividends.

Dow Chemical ( DOW ) is looking increasingly like a company with new elements.

In December, CEO Andrew Liveris told Reuters that the company would sell its chlorine operations, its oldest business unit. Liveris said the move is part of an effort to focus on "higher margin, more consistent earnings growth businesses."

Other units on the block include epoxy and part of the brine and energy assets. All are vulnerable to commodity-price volatility.

Dow has been steadily shedding assets for years, lopping off about 30% worth of circa 2006 revenue but still growing sales overall. In 2006, revenue was $49.1 billion vs. $57 billion last year.

Hedge fund manager Daniel Loeb is urging a faster, more radical reshaping, but Warren Buffett backs Liveris' steady approach. Berkshire Hathaway acquired $3 billion of Dow's convertible preferred shares in 2009. As of early December, Berkshire still had them.

In Q4, Dow's earnings grew 97%, topping the Street's view for 30% growth. Revenue inched up 3% vs. estimates for 1.5%. After-tax margin was 14.3%, the best in nine quarters.

The company recently announced a 15% increase in its quarterly dividend to 37 cents a share and jacked up its share buyback program to $4.5 billion, with about $4 billion available for 2014.

Dow Chemical's portfolio includes specialty chemicals, plastics, agroscience and advanced materials. About a third of revenue comes from the U.S. Its business reaches 36 countries, tying it to the world economy.

In the earnings call Wednesday, CFO William Weideman said the world economy for 2014 shows "signs of improving economic conditions," but that the macroeconomic environment remains "largely unchanged."