Dow Chemical Bond Offering to Pay 4.4% for 5-Year Bond

Dow Chemical is doing a bond offering on or around June 10 for bonds with 5-7-and 10 year maturities. The bonds have the following coupon rates:

Maturity Coupon

2015 4.1%

2017 5.0%

2020 5.950%

The five year rate of 4.1% is significantly higher than the best 5-year CD rate of 3.31%. It is also much higher than the five year Treasury rate of 2.02%.

The bonds are rating of BBB-/BAA3 places it just above junk status in the investment grade category. That might be good for some because the lower investment rating means more yield.

Dow's stock price has rebounded from its financial crisis low of $7.16 and now stands at $26.15. The companies debt to equity and debt to asset levels are in line or even slightly below its revials. The company also has enough cash to pay a quarterly dividend of $.15 per share, which provides a current yield of 2.29%. The company did reduce its dividend from $.42 per quarter during the financial crisis so clearly the company felt some pressure from the recession.

In a recent interview in Bloomberg, the company's CEO, Andrew Liveris said that demand and sales were picking up. “We are seeing good momentum and the momentum is continuing in the second quarter,” Liveris said.

Of course, these bonds are longer-term bets. If you believe the economy will continue to strengthen then Dow should be okay and the bonds might present some nice yield. If you believe we are in for another deep recession, then stay away.