So, after the news of the past couple days, I have added to the position in Dow Chemical (DOW)
At prices averaging $32 even we tripled the position in Dow yesterday and today.
Current yield, 5.25% and rock solid safe. Think about it, Berkshire Hathaway’s (BRK.a) Warren Buffett only got 8.5% on his $3 billion convertible and it is underwater if shares are under $41 and change (28% higher than today) in 5 years ($41 is the conversion price).
Now, Warren’s 8.5% is stagnant. My dividend will grow and I will also gain the additional 28% price appreciation of the shares if they sit at $41 when Warren converts at no gain other than the interest he has received.
Dow has increased the dividend 18% over the past three years. Assuming a consistent growth, three years from now the dividend will be $1.94 for a yield on my investment of 6%. Again given the same growth, I will get $2.17 a share when Warren converts his shares and I will be yielding 6.8% on my initial investment.
The dividend growth enjoyed by shareholders may just turn out to be a conservative growth rate that I am using for comps. The reality may very well be far better than that but is very unlikely to be anything less than the current yield given the company’s history. Even were the dividend to stay flat for 5 years (again, very unlikely scenario), the common at these prices offers superior appreciation prospects.
When you add the 28% share price growth I will get in order for shares to get to $41, right now, common share buyers today are getting a better deal than Warren. He will receive interest totaling a 42.5% over the five years and if the dividend on the common stays the same for 5 five years, I will receive 26.25% plus the 28% appreciation in the shares for a total return of 54.25%. Should the dividend grow as is has, the return on my invested cash goes to 58% plus.
Chances do not come around very often to get a better deal than Warren….grab it.
Disclosure (“none” means no position):Long DOW, None
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6 replies on “Buying More Dow Chemical for A Better Deal Than Warren Got”
Grab it?
If Warren thought DOW was worth buying… he’d buy it. Obviously he sees it as a pass, as do I. This is why he has ensured himself of 8.5% with basicaly 0% risk of capital loss. I’d rather own SHW than DOW. In fact, with companies like VMC, OSK, and a multitude of others out there why would anyone want to waste their time with DOW???
Since when should an investor compare their return against another investor vs comparing their return against what they earn in a separate investment?
This article is horribly misguided in every way imaginable. The most flagrant being the confident manner in which you tell people they can invest in a stock at a better price than Warren which directly implies that Warren has a) actually invested in the stock (which he has not) and b) thinks the company is worth buying (of which there is no data to base such a decision).
Despicable – I suppose at the very least you did manage to inform investors that your article was written to prop up your own investment in DOW.
— JD
JD,
I do not even know where to begin.
warren invested $3 billion in a convertible in dow. it converts to common in 5 years at $41 a share.
if the stock is under $41, it converts and he is underwater (loss)
he has tremendous risk, more than someone buying the common now. if i buy the common and in 5 years it is at $38, i am still up, warren will sitting on a loss.
the comp is very valid as it shows buyers of the common after the recent slide have a short term chance to get a better deal than warren. a rarity
Todd!??!
Oh my goodness, what are you talking about??? How can you be a financial blogger??
Do you even read your own posts?
“On or after five years from the date on which the Convertible Preferred Stock is issued, the Company may, at its option, at any time or from time to time, cause some or all of the Convertible Preferred Stock to be converted into shares of the Company’s common stock at the then applicable conversion rate if, for 20 trading days within any period of 30 consecutive trading days ending on the trading day preceding the date the Company gives notice of conversion at its option, the closing price of the Company’s common stock exceeds 130% of the then-applicable conversion price. Dividends on the Convertible Preferred Stock are payable at the rate of 8.5% per annum, in either cash, common stock or a combination of both, at the option of the Company.”
Read the last paragraph very, very carefully.
The chance of Buffett losing any capital in 5 years is very minimal. The risk is NOT greater. Not even close.
— JD
Is it just me.. or is the tone of some of these “Anons” becoming more and more hostile. They almost sound like that bunch from Apple-stan.
They’re rude and have a tough time comprehending content being posted.
let’s do it this way…..
they convert, my investment in the common is still 28% ahead of buffets, right?
wasn’t that the jist of the post?
my upside is still greater than his….
are you now admitting he has invested in Dow?
vlado,
bear markets make people grumpy
jd has been calling for the whole ball of wax to melt for a while and so far has been wrong..
it is too bad because he does have some worthwhile thoughts but ruins them with bomb throwing far too often