With little wind at its back from last year’s exceptional performance, this market is a stock-picker’s market, and one that continues to favor existing winners.
For an existing portfolio of large-cap, dividend-paying blue chips, I don’t see a lot of new action to take right now. The most valuable information for investors is what corporations actually say about their businesses. The outlook for dividends and share repurchases is solid.
Companies like Apple Inc. (AAPL) and Google Inc. (GOOG) get all the headlines, but it’s still very material what a company like E. I. du Pont de Nemours and Company (DD) says about business conditions around the world. Even if you wouldn’t consider DuPont as an investment, the business operates in a number of important industries, so what the company’s management reports could help to inform your market view.
Last year, the company said its total sales grew three percent to $35.7 billion. Five-percent growth in volume was offset by a one-percent decline in local selling prices and the one-percent negative impact of a stronger U.S. dollar.
The standout for DuPont was, once again, the company’s agricultural division, which saw a 13% gain in sales for the year to $11.74 billion. Agriculture also contributed the most to the company’s operating earnings, improving by 16% over 2012 to $2.48 billion.
This year, DuPont expects operating earnings of $4.20–$4.45 per share. This translates to an 8%–15% gain over 2013, which is pretty solid. The company expects 2014 total sales to grow four percent to approximately $37.0 billion, which is after an estimated two-percent decline from divestitures.
Management expects global industrial production to keep improving in 2014. Agriculture input costs are expected to be lower, and the company expects further average strength in the value of the U.S. dollar.
Like so many other dividend-paying blue chips, DuPont is still buying back its own shares. (See “The Stocks to Own Right Now…”) The company plans to buy back $2.0 billion of its own common stock this year. Management cited its strong cash position and balance sheet as reasons for the program.
As of December 31, 2013, the company’s cash and cash equivalents position was $8.9 billion. This compares to $4.3 billion a year earlier.
All in all, DuPont’s fourth quarter and fiscal 2013 were quite solid. Shareholders’ equity increased significantly last year and even though the stock has gone up tremendously, I don’t view it as overvalued, given its earnings outlook and strong balance sheet. With a burgeoning cash position, another dividend increase is likely this year.
Dividend-paying blue chips may not appeal to some investors, but I think a handful of these stocks could make excellent components in any equity market portfolio. In addition to the potential of rising dividends and the opportunity for dividend reinvestment, you get earnings reliability, global diversification, and economies of scale.
DuPont’s numbers are a material reflection of corporate business conditions in agriculture and industrial products. According to the company and its share price, business is pretty good.