Should Investors Plant du Pont in Their Portfolios?

By Ryan Guenette - August 1, 2012 | Tickers: DD, FMC, MON, PPG, DOW | 0 Comments

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The year is 1802. Eleuthère Irénée du Pont is watching the French Revolution unravel right before his eyes. His father is a French economist, politically active writer, and government official who strongly supported the constitutional monarchy. His father supported the monarchy so much so that he offered himself up to protect King Louis XVI in 1792, when an angry crowd confronted the palace guards. Eleuthère Irénée du Pont later escaped to America with his family. When the du Pont family settles in Delaware, Eleuthère Irénée du Pont turns his attention to opening a gunpowder mill on the Brandywine River. During the Civil War, Eleuthère Irénée du Pont supplied the Union Army with nearly half its gunpowder.

Now 210 years later, Du Pont is a leading manufacturer in the production of dynamite, smokeless powder, synthetic rubber, polyester, nylon, and Teflon. Presently, E I Du Pont De Nemours & Co. (NYSE: DD) is a trailblazer in the sectors of sustainable materials, biotechnology, agriculture, and nutrition, employs nearly 70,000 people, and is worth $46.25 billion. During the past 10 years, Du Pont has underperformed the broader market, rising 18.7%, during a period in which the S&P 500 has risen 63.49%. Despite this recent disappointment, can Du Pont find higher growth in the coming decade, and should investors plant Du Pont in their portfolios?

Fertilizing Growth

In 2010, Du Pont reported earnings per share of $3.28. In 2001, Du Pont stated that earnings per share had cultivated $0.40, to $3.68, representing 12.2% year over year growth. This trend of double-digit growth is anticipated to continue into 2012, when the average consensus believes Du Pont’s earnings per share will reach $4.12, displaying 11.96% year over year earnings per share growth. Consistent growth is anticipated once again in 2013, as the street believes Du Pont’s earnings per share will grow 12.62%, to $4.64. And the trend is expected to continue into 2014, as the average analyst estimate points to Du Pont’s earnings per share rising to $5.45, showcasing tremendous 17.46% year over year earnings per share growth.

Du Pont’s growth is exceptionally fast-paced and persistent. Much of that growth is now expected to come from its agriculture sector. With the historical drought occurring in the bread-basket on the United States, Du Pont’s agriculture solutions may provide significant relief from the extreme shortage of crops. The chart below displays the extreme conditions in the United States.

The chart below displays Du Pont’s sales, operating profit, net income, net margin, and operating margin over the coming years.

Enriching Dividend

Presently, Du Pont pays out a quarterly dividend of $0.43, or an annual dividend of $1.72, which at the current price of $49.71, yields 3.46%. The dividend is up from last year’s annual dividend of $1.64, and is expected to slightly rise in the foreseeable future. In 2013, the average consensus believes Du Pont’s dividend will remain steady at $1.72 annually. In 2014, the street projects that it will be raised $0.04 annually to $1.76, presenting 2.33% year over year dividend growth. If prices were to remain steady, that would put the dividend yielding 3.53%. Du Pont’s dividend is rather substantial at 3.46%, but not enough to make the company a target of an income seeker, but will add some sturdy value to the stock in the long term. The chart below displays earnings per share, dividend, and rate of dividend, or the percentage of net income that is paid out in the dividend.

Is du Pont the Cream of the Crop?

Compared to some of its most prominent competitors, such as FMC Corp. (NYSE: FMC), The Dow Chemical Company (NYSE: DOW), Monsanto Co. (NYSE: MON), and PPG Industries (NYSE: PPG), Du Pont compares relatively correspondingly.

In terms of growth, Du Pont is ranked third out of five, while Dow tops the charts. Du Pont pays out the second largest dividend in the industry, second only to Dow, and is growing its dividend at the lowest pace in the industry. Dow not only pays out the largest dividend, but is also growing its dividend at the highest speed. On a fundamental note, all companies are relatively stable around 20 in the price to earnings ratio, while Dow stands out to the upside when growth is taken into account in the PEG ratio. In the net profit margin, Du Pont is located at the middle of the road, while Dow stands out to the downside, and Monsanto stands out to the upside.

The Foolish Bottom Line

E I Du Pont De Nemours And Company was established in 1802, and probably has penetrated nearly every source of growth that can be found in its industry. Despite this fact, the company may find significant growth as their agricultural solutions become more popular, as the conditions in bread-basket of the United States worsen. Compared to its peers, Du Pont is relatively in line. If one is in search of a larger dividend, Dow may be considered.

When push comes to shove, in this volatile economic environment it is comforting to know that inside your portfolio sits a company that is over 200 years old: a company that investors may want to consider to planting in their portfolios.      

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