The complicated thing about Dow (NYSE:DOW) is that keeping track of the business can be a little difficult. Understanding how its vast interests work together to drive Dow stock is even a little trickier. It might be best to begin with a brief history.
Once upon a time, the Bronfmans, a wealthy Canadian family, owned 24% of Dupont. They got that stake as a result of its failed takeover of Conoco Oil in 1981. At the time, the Bronfman’s most significant investment was its ownership of 36% of Seagram, the liquor company Sam Bronfman founded in 1928.
The Dupont dividends generated by the 24% stake in the chemical company accounted for around 70% of Seagram’s earnings. In a much-disputed decision, Seagram sold the DuPont stake in 2003, setting off a chain of events that would cost the Bronfmans billions.
The Final Picture
Fast forward to June 3.
Corteva (NYSE:CTVA), the agricultural segment of the old DowDupont was separated from DuPont (NYSE:DD), a global specialty chemicals company, while the material science unit was spun-off from DowDuPont on April 1 as DOW.
I mention the Bronfmans because if they still had the 24% stake in DuPont, the past two years would have presented them with a lot of decisions.
First, the August 31, 2017, a merger between the old Dow and DuPont saw shareholders receive 1.282 shares of DowDuPont per share held in DuPont. Throwing aside history, if the Bronfmans held on to the 24% stake, they would have received 267 million shares (867.8 million shares outstanding multiplied by 24% multiplied by 1.282) in the merged entity.
If they chose to retain their 24% stake, they would have 89 million shares in DOW stock, 89 million shares in Corteeva, and 89 million shares in Dupont.
Together, the trio of holdings has a market value of $13.4 billion with DuPont the largest holding valued at $6.6 billion followed by Dow at $4.6 billion and Corteva at $2.2 billion. They would pay annual dividends very close to $500 million.
Which Would They Choose?
In hindsight, I believe the family would choose to hang on to all three.
Just the other day I was talking to a friend about the fact that four companies control the world seed market with Corteva being one of them. In 2018, it had $2.7 billion in adjusted EBITDA from $14.3 billion in annual revenue. Of the $14.3 billion in sales, approximately 56% was from its seeds and traits business with the rest from crop protection and pesticides.
As the world continues to experience climate change, companies like Corteva will be vital to ensuring ongoing food supply.
So, despite not paying a dividend, as an agricultural pureplay, Corteva is very attractive over the long haul.
As for Dow and DuPont, they currently yield 5.4% and 2.3% respectively, making them very attractive dividend-paying stocks to also hold for the long haul.
My InvestorPlace colleague Josh Enomoto recently suggested that DOW is still too complicated a company to understand despite being separated from DuPont and Corteva.
He’s not wrong. Dow’s got a lot of moving parts operating in several different industries with seemingly little overlap and efficiencies.
The Bottom Line on DOW Stock
I don’t own any of the three stocks and I’m not sure I ever would. Not because I think any of them are bad businesses. It’s just that I like to own easily understandable companies. Dow, DuPont, and Corteva aren’t.
That said, if the Bronfmans still were in the picture, I’d bet they would hang on to all three of them. I guess we’ll never know.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.