BASF

The experts from Ludwigshafen

Okay, I admit it: I was never particularly good at chemistry. My old teachers would probably file me somewhere in the middle. That's also why I didn't end up working at BASF - I'd rather leave that to the experts. And the group has quite a few of them. Around 39,000 people work at the Ludwigshafen production site alone.

But how come, as an outsider, you hardly notice what's going on there? What does the chemical group actually produce? BASF usually stays in the background, but it has its fingers in quite a lot of industries. For one, they make vitamins and food additives, they help lower fuel consumption in the automotive industry, and they supply the right chemicals for the paper and cardboard industry. They also have a number of products for agriculture in the pipeline. And that's not nearly all ...

The history and business model of BASF SE

In 1865, Friedrich Engelhorn founded the Badische Anilin- und Sodafabrik in Mannheim. There he wanted to produce coal tar dyes for the textile industry. Just one week after founding it, he moved to the other side of the Rhine, because a subsidy of 1.5 million guilders for new industrial companies was on offer there. Within a few years BASF made a name for itself on the international dye market. More researchers joined the team and production could be expanded quickly. As early as 1900, it presented itself at the World's Fair in Paris as the world's largest chemical factory.

Today BASF is still the largest chemical group in the world. Over 122,000 employees work at more than 390 production sites in over 80 countries. The company mainly earns its money in 6 different divisions: chemicals (paints, coatings, solvents), plastics (polymers, foams), performance products (pharma, hygiene), functional solutions (catalysts, sports flooring, insulation systems), agricultural solutions and nutrition (insecticides, vitamins), and oil and gas (via its subsidiary Wintershall Holding AG).

What's next for BASF?

Since business has been going rather poorly lately, BASF's management has announced a large-scale savings program. Revenue kept rising, but it's getting harder and harder to run the business more profitably. With the help of the savings program, they want to achieve annual savings of around 2 billion euros from 2021 onward. That will surely please the board and the shareholders, which is why I expect profits, and with them the stock, to keep rising in the future.

Why did the stock drop so sharply last year?

For one thing, you can definitely blame that on the rising oil price. In addition, demand in the automotive industry weakened and the prices of many important products fell sharply. As a result, BASF made 23% less profit in 2018 than in the previous year.

What about the dividend?

BASF has paid an annual dividend to its shareholders since 1953. It was last cut in 2009, and since then it has been rising regularly again. At the current share price, the dividend yield is around 4.8%. The payout ratio of 47% of earnings isn't too high either. In general, you can expect the dividend to keep rising over the next few years as well.

Conclusion:
BASF is a global group without which many areas wouldn't function. A great many industries depend on the chemical group's products and expertise. Granted, the industrial sector is relatively cyclical, but because the company is so broadly positioned, it will be able to weather an economic slump more easily than some competitors. Given the current high dividend yield, a long-term investment here can be worthwhile even for non-chemists.