Cramer's Chemical Formula for Cash
Dividends can provide some much-needed income in this tough market. Especially as the Federal Reserve cuts interest rates, decreasing the amount banks are willing to pay out on savings accounts. That’s why Cramer’s been recommending that investors look for stocks with strong yields as an alternative.
Dow Chemical pays out a healthy $1.68 a share, or 4.5%. But a deeper look shows a company that might be in trouble. High gas and oil prices are forcing the company’s production costs through the roof and the stock’s down about $7 since Dec. 13, a date we’ll expound on later. Dow’s a cyclical business, too, and that’s not usually what Wall Street wants with a recession looming.
But that’s only part of the story, Cramer said. Nat gas prices always drop in the spring, so relief is on the way. And on the last earnings call CEO Andrew Liveris raised earnings expectations for 2010 and 2011, a time with they should be at their worst. Plus, there was a joint venture with Kuwait that earned Dow $7.3 billion in after-tax cash. When did that happen? Back on Dec. 13. So the company brings in billions while gaining 50% of the new JV and Wall Street takes the stock down? Yup. Just think of it as a great buying opportunity, Cramer said.
Dow also partnered up with Monsanto on a new hybrid corn seed. The move puts Dow closer to a booming sector while at the same time making the business less cyclical.
What’s important here, Cramer said, is that the bad news is already priced into this stock, but the steps Dow has taken to improve itself have not. So there’s potential for some upside here. And if oil ever dropped in price, this $37 name would jump to $41.
Oh, and don’t worry about Dow’s ability to pay its dividend, Cramer said. The company has plenty of cash on hand.
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