What happened

Shares of DuPont (DD) fell 40.5% last year, according to data provided by S&P Global Market Intelligence. That looks terrible next to the 28.8% gain of the S&P 500 in 2019, but the dividend stock actually performed better than it appears. 

That's because the entity now known as DuPont was the old DowDuPont -- on paper, anyway. When it completed the spinoffs of the materials-science unit Dow Inc and agricultural-sciences unit Corteva Agriscience last year, each transaction had the expected effect of lowering the market valuation of DowDuPont. That shows up in stock charts as a sudden drop in value. 

If investors only look at the stock's performance from the first day the new DuPont became a separate company (June 3) to the end of 2019, then shares lost 5.6% of their value, compared to a gain of 18.9% for the S&P 500 in that span. That said, investors had their reasons for selling the stock at the end of 2019. 

A pink arrow crashing through the bottom axis of a chart.

Image source: Getty Images.

So what

The primary argument for splitting DowDuPont into three unique companies was that each business would be stronger and more efficient on its own. While it'll take time for DuPont to reach all operating-efficiency targets, the specialty-materials leader performed relatively well in the third quarter of 2019, considering challenging market conditions and currency headwinds. 

That wasn't enough to overcome other sources of uncertainty. In the second half of 2019, investors started to grow concerned about the new DuPont's potential liabilities related to the old DuPont's fluoropolymer products. Precursors used in the manufacture of such products don't easily break down in the environment and are highly toxic to humans. 

While the portfolio is now a part of Chemours (CC -2.07%), and the companies have previously settled public health lawsuits in Ohio, a heavily populated region of North Carolina is now dealing with similar environmental issues caused by a fluoropolymer manufacturing facility nearby. The risk of incurring substantial liabilities forced Chemours to sue DuPont, alleging that the former parent company saddled it with the onerous liability by not preparing financial projections in good faith.

The bitter dispute is working its way through the courts right now. Chemours estimates that it will need to pay over $200 million to address environmental damages in North Carolina. For reference, the prior settlement in Ohio cost $671 million, which was split between the two companies.

Now what

DuPont owns a formidable portfolio of specialty-materials products, including an under-the-radar biosciences unit, which may be the world's premier industrial biotech unit. It's a shame that the toxic legacy of fluoropolymers is overshadowing the company's promising future, but investors would be wise to navigate the uncertainty with caution.