Dow’s former 12% dividend yield has had it within the highlight for greater than a yr.
Even the current 50% discount within the dividend has spurred additional consideration and debate over the worldwide chemical big’s prospects.
Merchants could have made a rapid 20% just lately, however regular, steady earnings traders must see indicators of a turnaround earlier than chasing yield.
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“If it seems to be too good to be true, it in all probability is.”
That adage has haunted shareholders (and watchers) of Dow Inc. (NYSE: DOW) for months and months now. This, as the corporate’s earlier $2.80 annual dividend noticed the yield hovering round 10% since early April, an eye-grabbing quantity that seemed engaging however was greater than offset by a steep, yearlong slide within the inventory. Shares had already misplaced greater than half their worth earlier than administration lastly moved on July 24, asserting a 50% dividend discount throughout their second-quarter earnings name.
Based on Dow Chairman and CEO Jim Fitterling on the corporate’s second quarter earnings name, the minimize was essential to protect money and provides the 128-year-old chemical big much-needed flexibility to navigate a troublesome setting. Which is all properly and good, nevertheless it must also function a cautionary flag — particularly for income-oriented traders. In brief, Dow may not be a purchase but. The basics are nonetheless too weak, and the trail to restoration is much from sure.
I will be the primary to confess that administration was prudent to decrease the quarterly dividend to $0.35 per share from the $0.70 stage it had held since June of 2019. It is a payout that is higher aligned with free money stream, reduces pressure on the stability sheet and offers rapid optionality and respiration room.
That stated, prudent would not all the time imply engaging. Whereas Dow’s present dividend yield immediately (roughly 5.8% vs. 1.2% for the broader S&P 500) seems to be interesting on the floor, the very same set of headwinds are nonetheless blowing that pressured the discount within the first place.
It’s my perception that till there’s proof of demand restoration, pricing enchancment, earnings stability, and extra, conservative traders ought to resist the urge to chase the yield. The primary check comes this fall with third-quarter outcomes slated to be launched October 23. That will likely be only one in a collection of checkpoints wanted to show whether or not Dow’s dividend-fueled turnaround is actual or fleeting.
Dow’s personal commentary in July underscored how a lot uncertainty stays:
Geopolitical headwinds and tariffs proceed to weigh on demand and pricing.
Weak world demand, noticed gross sales down 7% yr over yr companywide and throughout all enterprise models.
Margin stress, as pricing weak spot outpaces value financial savings.
Execution challenges, mirrored in administration’s personal forecasting difficulties and its ‘lower-for-longer’ earnings steering.
None of those variables appear to have improved because the summer season. The dangers are nonetheless current, and the visibility into restoration stays restricted.
The inventory’s 20% rebound over the previous two weeks illustrates the distinction between a tactical commerce and a long-term earnings funding. To make sure, short-term merchants capitalized on oversold circumstances and timing the bounce mattered greater than dividend sturdiness. The very fact stays, even with their current rally, shares of Dow are nonetheless about $5–or 20%– beneath the $30 stage they had been buying and selling at previous to the seismic dividend slash information.
Revenue traders, nonetheless, play a completely completely different recreation that’s way more linked to cost stability and fee predictability. Some analysts even argued that Dow ought to have suspended the dividend solely to reset expectations and preserve additional cash. If nothing else, that perspective underscores the uncertainty that also shrouds the corporate, the trade and the sustainability of the smaller payout.
Dow is a resilient firm with scale, a diversified world footprint, and a long time of expertise managing by downturns and challenges. However calling a cyclical backside in chemical substances, or readability within the ongoing tariff turmoil, is much from easy. Demand restoration is determined by world progress, commerce coverage, and pricing power–all of that are largely outdoors the corporate’s management.
Whether or not the subsequent upturn arrives in six months or two years, is anyone’s guess. For dividend traders, that doesn’t strike me as a basis sturdy sufficient to justify stepping in immediately.
Dow’s dividend minimize was the fitting transfer, however in my view it would not resolve the larger drawback: weak fundamentals with no clear timeline for enchancment. The inventory’s current rally could entice merchants, however for true income-focused portfolios, the dangers nonetheless outweigh the potential reward.
That is why I feel the prudent transfer right here is persistence. The upcoming October twenty third Q3 earnings report will likely be an vital first checkpoint, however it would take a number of milestones and quarters of progress earlier than Dow can credibly be thought-about a steady earnings play once more.
For now, Dow is one dividend inventory I might keep away from.
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*Inventory Advisor returns as of August 25, 2025
Matthew Nesto has no place Dow, Inc.
The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.
1 Dividend Inventory I might Keep away from Right this moment? Dow was initially printed by The Motley Idiot
