Over the past several years, activist investing has really taken off and we have begun to see hedge fund managers become household names as they vow to turn companies around and return value to the shareholders. The latest victory comes from Third Point founder Daniel Loeb, in an attempt to bring value back to Dow Chemical Co (NYSE:DOW). After continuing to press the board of directors into increasing the dividend and expanding the company’s share buyback program, an announcement was made today from Dow Chemical saying that the company is increasing its quarterly dividend from $.37 a share to $.42 a share and is increasing the buyback program by $5 billion, effectively doubling the size of the buyback program to the current level of buybacks to $9.5 billion. Dow Chemical is up 1.80% intraday, as of this writing.
Dow Chemical’s business segments sell off
Dow Chemical has really leaned up since activist investors began establishing positions over the past few years. Since then, the company has been able to sell off business segments that were exposed to volatile commodity prices and focus on its newly narrowed core businesses of packaging, agriculture and electronics. Additionally, the company has plans to cut $1 billion in fixed costs over the next three years, which will definitely bolster underlying profits.
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Daniel Loeb has established himself as a successful activist investor with his past dealing with major companies such as Yahoo! Inc. (NASDAQ:YHOO), Sothebys (NYSE:BID), and Sony Corp (ADR) (NYSE:SNE). His hedge fund, Third Point, has been successful with reviving companies that are stuck and are not producing results for shareholders. For his Dow Chemical holding, he was able to get management to begin selling off lagging businesses and begin the buyback program in May of 2014. Loeb also continues to press executives at Dow Chemical to spin off its petrochemical business, but the management has stood its ground so far, in its backing of the business as an important asset to the company.
Dow Chemical beats Wall Street estimates yet again
While some may have differing opinions on activist investors, the results do not lie. Dow Chemical reported its fourth consecutive quarter in a row of beating Wall Street estimates. When the company released results in late October, Dow saw revenues increase 5% from a year ago to $14.4 billion and earnings per share came in at $.71, and increase from $.22 per share a year ago. Analysts are beginning to favor Down Chemical again, as the company has made significant strides in its business structure over the past few years. Activist involvement has allowed the company to become more shareholder friendly and this is certainly winning them over, particularly after days like today.