Al Root

The operating environment just didn't improve fast enough for Dow Inc. The commodity chemicals producer slashed its dividend on Thursday to preserve cash in tough times.

The new quarterly payout is 35 cents, down from 70 cents. Thursday's "announcement aims to ensure we maximize long-term shareholder value as we navigate a prolonged industry downturn and the resulting lower-for-longer earnings environment," said CEO Jim Fitterling in a news release. "Our capital allocation approach remains unchanged, and we are committed to delivering leading shareholder returns over the [business] cycle."

Dow shares fell 17.5% to $25.07 on Thursday, while the S&P 500 gained 0.1% and the Dow Jones Industrial Average fell 0.7%. The cut also hit shares of chemical-making peer LyondellBasel, whose stock fell 9.7% to $60.70.

Lyondell stock yields about 8%. Before the cut, Dow stock yielded more than 9%. Based on the new payout and current price, the yield is almost 6%.

The new dividend will cost about $1 billion a year. Dow is expected to generate free cash flow of about $500 million in 2025, and $600 million in 2026, according to FactSet. That's a far cry the $5 billion-plus annual average from 2020 to 2023.

Evercore ISI analyst Eric Boyes downgraded shares to Hold from Buy following earnings. His price target went to $32 a share from $56. The dividend cut provides flexibility, but the company's outlook was "lackluster," wrote Boyes.

The downgrade came with price target cuts from RBC, Morgan Stanley, Citi, and others. The average analyst price target is down to about $28 from about $51 at the start of 2025.

Overall, 13% of the analysts covering Dow stock rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.

Despite the cuts and downgrade, Dow stock closed up 1.7% on Friday at $25.51, offering a little relief for investors.

Along with the cut, Dow reported second-quarter earnings on Thursday morning. The company reported an adjusted loss of 42 cents a share on sales of $10.1 billion. Wall Street was looking for a loss of 17 cents on sales of $10.2 billion. A year ago, the company reported profit of 68 cents a share on sales of $10.9 billion.

Overall volumes decreased 1% with gains in the U.S. and Canada offset by weakness in Europe, the Middle East, Africa, and India.

Operating profit in the company's packaging division was $71 million, down from $703 million a year ago. Operating profit in the company's chemical-intermediates business was a loss of $185 million, down from earnings of $7 million a year ago. Operating profit in the coatings business was $152 million, up from $146 million a year ago.

Times are tough and the market is oversupplied, according to Dow, driving down profit margins. It's reacting by trying to control costs. "This quarter, the Dow team advanced several aggressive actions in response to the lower-for-longer earnings environment that our industry is facing, amplified by recent trade and tariff uncertainties," added Fitterling. "We are delivering near-term cash support and earnings-growth levers, which we anticipate will total more than $6 billion by 2026."

Included in the $6 billion is as much as $3 billion received from the formation of Diamond Infrastructure Solutions with Macquarie Asset Management, a legal judgment worth $1.2 billion, along with additional asset divestitures, capacity curtailments, cost reductions, and lower capital spending, Chief Financial Officer Jeff Tate said in an interview.

Lower costs and additional investments can help improve earnings down the road, but they were not enough to preserve the dividend. "At some point [the industry] will recover and we'll be in a very good position to be able to take advantage of that," added Tate.

It's been a tough year for Dow shareholders. Coming into Friday trading, Dow stock had fallen about 38% this year.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 25, 2025 16:41 ET (20:41 GMT)

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