DuPont (DD): Very safe dividend

By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 10/6/14 Sign up for Cabot Wealth Advisory—it’s free!

Technically, the name of the company is E. I. du Pont de Nemours and Company (DD). Management has seen no need to simplify it, even though everyone else does.

DuPont employs more than 64,000 people working in 90 countries in just about every industry possible. These include Agriculture (33% of revenues), Chemicals (18% of revenues), Performance Materials (18% of revenues), Nutrition Health (10% of revenues), Electronics (7% of revenues), Food & Beverage, Automotive, Mining, Rail, Packaging & Printing, Safety & Protection, Building & Construction, Energy, Health Care & Medical, Marine and Plastics.

The company has grown revenues every year of the past decade, with the exception of 2009, and grown earnings every year with the exception of 2008 and 2009. Obviously, the state of the global economy matters to DuPont.

The current leader of DuPont is Ellen Kullman, who joined the company in 1988 as a marketing manager and was named president in 2008.

Annual revenues are $36 billion, but today, the market says the company is worth $65 billion.

By that measure, I’d say she’s doing pretty well.

But not everyone agrees!

DuPont, the Stock

DuPont is growing, but slowly. That’s how it gets when you get huge. So for many investors, the company is mainly about the dividend.

DuPont pays an annual dividend of 2.6%, and that dividend is very safe. For investors who crave current income, and don’t mind the fluctuation of daily prices (they really shouldn’t even look at them), DD is a fine choice, much better than leaving your money sitting in the bank.

In fact, Cabot Dividend Investor holds DD in the Safe Income tier of its recommended portfolio.

But now somebody is stirring up trouble. Here’s what analyst Chloe Lutts Jensen reported in the latest issue of Cabot Dividend Investor.

“DuPont leapt to new 52-week highs this month after Trian Fund Management, led by activist investor Nelson Peltz, publicly called for the company to split into two entities to unlock shareholder value. Under Trian’s plan, DuPont would group its faster-growing food and nutrition businesses into a growth-oriented company, while keeping the industrial products branches together as a steady cash generator. Trian owns less than 3% of DD, so the plan’s success depends on whether other shareholders and company management are receptive. DuPont has been pursuing its own, more modest restructuring, but management said they had a “constructive” dialogue with Trian, so the proposal could actually go somewhere.”

As Chloe noted, the Trian announcement goosed the stock from 66 to 73, and now it’s pulled back to the 71 area as management considers Trian’s suggestion. Short-term, this is a good pattern for a growth stock, but DuPont is hardly a growth stock.

Third-quarter earnings will be reported October 8 before the market opens, and it’s possible management will make an announcement regarding Trian’s recommendation then, if not before.

But I don’t recommend investing on news. If you do, you’ll find yourself always playing catch-up.

Instead, I recommend investing using sound time-tested principles (as all the Cabot advisories do), and if you really care about investing in DuPont, or other solid dividend-payers, I suggest you become a regular reader of Chloe’s Cabot Dividend Investor.

She has a solid slate of recommendations yielding between 1.1% and 10.0% for her readers and year-to-date, her portfolio is up 4.4%.

Currently the membership to the publication is closed to the new members, but we have a few spots available for our Cabot Wealth Advisory readers. Click here to start your subscription today.