Published on June 26th, 2022 by Quinn Mohammed
Berkshire Hathaway (BRK.B) has an equity investment portfolio worth over $360 billion, as of the end of the 2022 first quarter.
Berkshire Hathaway’s portfolio is filled with quality stocks. You can follow Warren Buffett stocks to find picks for your portfolio. That’s because Buffett (and other institutional investors) are required to periodically show their holdings in a 13F Filing.
You can see all Warren Buffett stocks (along with relevant financial metrics like dividend yields and price-to-earnings ratios) by clicking on the link below:
Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.
As of March 31st, 2022, Buffett’s Berkshire Hathaway owned nearly 8 million shares of Celanese Corporation (CE) for a market value of just over $1 billion. Celanese Corp. represents only 0.3% of Berkshire Hathaway’s investment portfolio. This ranks it the 26th largest position in the portfolio, out of 49 stocks.
This article will analyze the chemicals company in greater detail.
Celanese Corporation is a global chemical and specialty materials company that engages in the production and sale of industrial chemicals. Celanese is one of the world’s largest producers of acetic acid and its downstream chemicals, as well as methanol, carbon monoxide, and ethylene.
The company also produces specialty polymers used in automotive, electronics, medical and consumer end markets. Celanese’s business segments are advanced engineered materials, consumer specialties, industrial specialties, and acetyl intermediates.
Celanese reported first quarter fiscal 2022 results on April 28th. Net sales for the quarter were $2.5 billion, a significant 41% increase over the prior year. The increase in sales was driven by pricing and volume increases. As a result, CE generated record adjusted earnings per share in the first quarter of $5.54, compared to $3.46 in 2021.
On February 18th, 2022, Celanese announced the agreement to acquire a majority of the Mobility & Materials business of DuPont for $11.0 billion. The deal will mark Celanese as a major global specialty materials company and is anticipated to lead to a doubling of annual free cash flow generation. This transaction is expected to close near the end of 2022.
Source: Investor Presentation
Leadership recently raised their 2022 outlook due to a strong start in the year. Adjusted EPS for the full fiscal year is expected to come in at roughly $17.00, up from prior guidance of $15.00.
Celanese’s adjusted earnings per share history has trended upwards for most of the last decade, hitting a peak in 2018 before coming back down as a result of the COVID pandemic, and then hitting its newest peak in 2021 with a massive $18.12 per share.
Due to significant earnings in 2021, CE has a record of compounding adjusted EPS at a rate of 19% and 22% over the past nine and five years.
The company has been accelerating their capital deployment cycle and allocating to their highest return opportunities, such as acquisitions.
Celanese announced the $11 billion acquisition of DuPont’s mobility and materials business in Q1 2022. This acquisition will increase the scale and improve vertical integration for Celanese Corp. However, it will also lead to increased debt, but the company anticipates rapid deleveraging within two years of the transaction close.
We estimate that CE can continue to grow adjusted EPS by roughly 2% in the intermediate term off this strong base. And, we expect the dividend will grow at 10% per year as it has been increased by double digits over the last nine years.
Competitive Advantages & Recession Performance
The company believes their competitive advantages include their global assets and resources, marketplace presence, broad materials portfolio and differentiated capabilities.
Celanese Corporation did not go through immense struggles during the great financial crisis as many other companies did. In fact, from 2007 onwards, earnings per share actually grew. At the time, the company paid a dividend of only $0.16 annually from 2006 to 2009, which was just a small fraction of earnings and the payout ratio remained solid.
Celanese’s dividend appears to be quite safe given it’s estimated payout ratio of only 16% in 2022. Additionally, it’s average payout ratio has remained below 30% over the last decade, so it has remained stable. This dividend has grown for eleven consecutive years, and we expect this to continue.
Valuation & Expected Returns
Shares of Celanese have traded for a 5- and 10-year average price-to-earnings multiple of 11.2 and 10.9, respectively. Shares are now trading below both of these averages, which indicates that shares could be undervalued at the current 7.1 times earnings. As a result, we believe there is a potential for a valuation tailwind in the intermediate term.
Our fair value estimate for Celanese stock is 11.0 times earnings. If this proves correct, the stock will benefit from a 9.2% annualized gain in its returns through 2027.
Shares of Celanese currently yield 2.3%, which is above the 5- and 10-year average yields of 2.0% and 1.7%. Due to the year-to-date crash in the stock price, the company now has a higher-than-average dividend yield. On a dividend yield basis, Celanese shares seem to be undervalued.
Putting it all together, the combination of valuation changes, EPS growth, and dividends produces total expected returns of 13.3% per year over the next five years. This makes Celanese a buy.
Celanese has announced the $11 billion transformative acquisition of DuPont’s mobility and materials business, which will see the company’s debt load increase, but should drive significant free cash flow expansion.
Given a 24% year-to-date decline in the company share price, Celanese appears to be undervalued, offers a higher-than-average historical dividend yield, and still has intact growth drivers. Celanese appears to be an attractive and growing chemicals business.
Other Dividend Lists
Value investing is a valuable process to combine with dividend investing. The following lists contain many more high-quality dividend stocks:
- The Dividend Aristocrats List is comprised of 65 stocks in the S&P 500 Index with 25+ years of consecutive dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 44 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.