Why Has Dow Chemical Increased Its Cash Rewards to Shareholders?

The Dow Chemical Company (DOW) has consistently increased its dividends over the last five years. Dividends increased at a CAGR (compound annual growth rate) of 26% between 2010 and 2014. The dividend payout ratio increased to 53% in 2014 from 35% in 2010. Dow has announced a total dividend of $1.26 per share in the first nine months of 2015, which is 14% higher than the dividend in the same period of 2014.

Dow has completed $4.2 billion of share buybacks in 2014 and purchased $0.3 billion shares in 4Q13. Up to 1Q15, Dow bought back shares worth $5.0 billion. Overall, the company plans to buy back shares worth $9.5–$10.0 billion by 2016. Dow is expected to buy back shares of more than $3 billion in 2015, including $1.5 billion due to the Olin transaction. The remaining $3.0 billion of share buybacks will be completed in 2016.

Currently, with 3.0%, Dow has the highest dividend yield among its peer group. Monsanto (MON) has the lowest yield of 1.9%. LyondellBasell Industries (LYB) and DuPont (DD) have dividend yields of 2.9% and 2.7%, respectively.

Since 2014, Dow has aggressively increased its focus on rewarding its shareholders. It has returned around $6 billion to shareholders through dividends and share buybacks. Dow is expected to increase the dividend in 4Q15. Overall, the company plans to return $10 billion to shareholders through share repurchases.

Since 2014, the company has restructured its businesses and has been divesting non-core assets and businesses. The company is mainly focusing on ethylene and propylene value chain businesses to reduce earnings volatility. The company is returning the cash proceeds from these divestitures to shareholders.

Investors can get exposure to the chemical industries by investing in individual stocks or ETFs such as the iShares US Basic Materials ETF (IYM). The combined holdings of Monsanto, DuPont, and LyondellBasell Industries form 25.2% of IYM.