The Legacy of du Pont
Corian, Teflon, Tyvek and Lycra
Last week, I wrote mainly about the automotive aspects of my recent road trip from Salem, Massachusetts to Savannah, Georgia and back. Today I write about the legacy of du Pont in Wilmington, Delaware.
The story starts back in 1802 when Eleuthere Irenee du Pont began operating a gunpowder mill near Wilmington, Delaware, using the free energy provided by the Brandywine Creek. I was there touring the grounds of the Hagley Museum and library, which showcase the roots of both the family and the company, and I can tell you it's a pretty healthy creek; in some places, they'd call it a river.
Today, we think of the du Ponts as rich, but in the beginning, Eleuthere was just a man working to make a living. Well, not quite a common man-the du Ponts were minor nobility back in France, and when the French Revolution threatened their existence, they fled to America. So Eleuthere had enough capital-and enough education and interest in the chemistry of gunpowder-to set up a plant.
After he died, his sons carried on, and after they died, other family members and trusted associates continued. In the Civil War, the du Pont factory supplied roughly half the gunpowder used by the Union Army.
Of course, the gunpowder business is not exactly a "safe" business. There's always the risk of explosion. So first Eleuthere, and then his descendants, made a point of living on the grounds of the gunpowder factory, the better to reassure employees that the business was as safe as possible.
Here's a photo of one of the doors of the house, listing the three generations who lived there. We had the last tour of the day-private by chance-and it was wonderful.
Still, there were explosions, and there were dozens of deaths in the 119 years the plant operated. In fact, one of Eleuthere's grandsons, Lammot du Pont, (who had patented blasting powder), died in a nitroglycerin explosion in New Jersey.
Before that fatal day, however, Lammot had 11 children, and some of them and their children did quite well.
Most notable was Eleuthere's great grandson, Pierre Samuel du Pont, who had no children and spent much of his time traveling the world and building one of the world's best public gardens, Longwood Gardens. Located a short drive outside Wilmington in Kennett Square, Pennsylvania, it encompasses 1,077 acres, including a spectacular four-acre greenhouse structure that has 20 rooms!
From giant water lilies to the Italian Garden to orchids, palms, roses and topiary, it's all wonderful and very well maintained.
I was intrigued by the bonsai room, which included this pomegranate tree whose training was begun in 1910.
To recap, Pierre Samuel was Eleuthere's great-grandson, and his garden is a fine testament to his gifts, as well as a gift to beauty-seekers of today.
Muddying the waters a bit more, Eleuthere had a nephew, Samuel Francis du Pont, who achieved the rank of Rear Admiral in the U.S. Navy and served prominently in both the Mexican-American War and the U.S. Civil War. He's the du Pont the circle in Washington D.C. is named for.
And Eleuthere had another great-grandson who also left something to remember him by. This was Henry Francis du Pont, who studied horticulture and animal husbandry in school, and then did useful work breeding very productive Holstein-Friesian cattle on the grounds of the family estate. Today's dairy industry owes a lot to Henry Francis.
Henry had two daughters (the last of whom died this year), and his greatest feat was expanding the family's 30-room house in Winterthur, Delaware (a Wilmington suburb) to a 175-room mansion, in the process filling it with the very best American antiques money could buy, focusing on the period 1640 to 1860.
When we visited, Winterthur was running an exhibit on the costumes of Downton Abbey, showing both the clothes and the scenes in the show in which the clothes appeared. Very well done, it brought back lots of memories from the show. I was amazed at how much detail of the clothing is lost on the screen.
All these treasures bought by the du Pont boys cost money, and of course, that was amply provided by the success of the DuPont company, which has been well managed throughout most of its life and remains well managed today.
Among the company's inventions have been household goods like neoprene, nylon, Corian, Teflon, Mylar, Kevlar, Nomex, Tyvek and Lycra.
DuPont, the Company
Technically, the name of the company is E. I. du Pont de Nemours and Company. Management has seen no need to simplify it, even though everyone else does.
DuPont employs more than 64,000 people working in 90 countries in just about every industry possible. These include Agriculture (33% of revenues), Chemicals (18% of revenues), Performance Materials (18% of revenues), Nutrition Health (10% of revenues), Electronics (7% of revenues), Food & Beverage, Automotive, Mining, Rail, Packaging & Printing, Safety & Protection, Building & Construction, Energy, Health Care & Medical, Marine and Plastics.
The company has grown revenues every year of the past decade, with the exception of 2009, and grown earnings every year with the exception of 2008 and 2009. Obviously, the state of the global economy matters to DuPont.
The current leader of DuPont is Ellen Kullman, who joined the company in 1988 as a marketing manager and was named president in 2008.
Annual revenues are $36 billion, but today, the market says the company is worth $65 billion.
By that measure, I'd say she's doing pretty well.
But not everyone agrees!
DuPont, the Stock
DuPont is growing, but slowly. That's how it gets when you get huge. So for many investors, the company is mainly about the dividend.
DuPont pays an annual dividend of 2.6%, and that dividend is very safe. For investors who crave current income, and don't mind the fluctuation of daily prices (they really shouldn't even look at them), DD is a fine choice, much better than leaving your money sitting in the bank.
In fact, Cabot Dividend Investor holds DD in the Safe Income tier of its recommended portfolio.
But now somebody is stirring up trouble. Here's what analyst Chloe Lutts Jensen reported in the latest issue of Cabot Dividend Investor.
"DuPont leapt to new 52-week highs this month after Trian Fund Management, led by activist investor Nelson Peltz, publicly called for the company to split into two entities to unlock shareholder value. Under Trian's plan, DuPont would group its faster-growing food and nutrition businesses into a growth-oriented company, while keeping the industrial products branches together as a steady cash generator. Trian owns less than 3% of DD, so the plan's success depends on whether other shareholders and company management are receptive. DuPont has been pursuing its own, more modest restructuring, but management said they had a "constructive" dialogue with Trian, so the proposal could actually go somewhere."
As Chloe noted, the Trian announcement goosed the stock from 66 to 73, and now it's pulled back to the 71 area as management considers Trian's suggestion. Short-term, this is a good pattern for a growth stock, but DuPont is hardly a growth stock.
Third-quarter earnings will be reported October 8 before the market opens, and it's possible management will make an announcement regarding Trian's recommendation then, if not before.
But I don't recommend investing on news. If you do, you'll find yourself always playing catch-up.
Instead, I recommend investing using sound time-tested principles (as all the Cabot advisories do), and if you really care about investing in DuPont, or other solid dividend-payers, I suggest you become a regular reader of Chloe's Cabot Dividend Investor.
She has a solid slate of recommendations yielding between 1.1% and 10.0% for her readers and year-to-date, her portfolio is up 4.4%.
Currently the membership to the publication is closed to the new members, but we have a few spots available for our Cabot Wealth Advisory readers. Click here to start your subscription today.
Yours in pursuit of wisdom and wealth,
Timothy LuttsPublisher, Cabot Wealth Advisory
Analyst of Cabot Stock of the Month