You can't count on Dow Chemical's dividend anymore
Posted
Jan 27 2009, 02:11 PM
by
Kim Peterson
Rating:
Dow Chemical's (DOW) dividend is as reliable as it gets. The company has paid it consecutively since 1912, and the dividend has never decreased.
It's a tradition that Dow vowed not to break just last month. "Not on my watch," said CEO Andrew Liveris. But with layoffs and plant closures underway, could Dow really expect to keep up the payment? Last year, the company shelled out $1.5 billion in dividends.
Liveris has since changed his mind. Now, he says, a dividend cut is possibile.
"The world has changed in the last 30 to 45 days," Liveris said Tuesday. "The world is telling me that my dividend is too high."
Dow's dividend yield last quarter was just shy of 13%. That compares with a 7.1% yield at DuPont (DD) and a 2.8% yield at Rohm and Haas (ROH).
Speaking of Rohm and Haas, Dow is now in a bit of a bind in its attempts to buy its rival. Dow agreed to buy Rohm and Haas for $15.4 billion in July, before the financial world went to hell, and now it's having trouble closing the deal.
The Federal Trade Commission set a deadline for today to close the deal, but Dow said it won't be able to make it. It's better positioned to handle the recession without that acquisition right now, Liveris said. That led Rohm & Haas to sue.
Another worry is that Dow's investment-grade rating sits two notches above junk status, the Associated Press reports. Any downgrade could hurt Dow's ability to finance the Rohm and Haas purchase.
In this case, a dividend cut is a logical choice. This isn't the time for Dow to uphold tradition.
Related reading:
Dow Chemical gambles on inflation with buyout
7 high-yield dividend stocks for the current market
