The decline in the chemical industry does not receive repentance and companies must adjust.
Dow’s Dividend Cut retains capital and makes the main business more stable.
Since the shares are now the perennial lowest knowledge, Dow has become a convincing opportunity.
10 shares we like more than DOW ›
Chemistry giant Dow (NYSE: DOW) July 24 Decreased by 17.5%by announcing disappointing earnings and reducing the dividend by 50%. Before the cut, DOW was the highest harvest S&P 500;
Dow has passed approximately a few years, including stock price for a perennial lowest border, decreasing income and activity margins and removed from Dow Jones Industry Average (and changed Shervin-Williams 2024. November).
That is why a reduction in dividends could be useful for the benefit of long -term investors and why August. Dow is worth a closer look.
Image Source: Getty Images.
As shown in this chart, DOW profit per share (EPS) and free cash flows (FCF) significantly increased significantly in 2021 and 2022.
However, EPS and FCF have been for many years. The situation worsened even more as DOW EPS and FCF became negative.
When the cost of a company dividend is higher than its FCF, it means that the money in business is lower than the money required to pay investors in cash dividends. Thus, the company can use cash in its balance sheet, increase debts, dilute its stocks or sell assets. However, those decisions are unsustainable over a long period of time.
If a company believes that its dividend deficiency can continue even during the average period, it may decide to reduce dividends to avoid its balance shealth or credit rating or credit rating (likely cheap) to only cover costs.
Reduction of Dow Dividends will help the company save about $ 990 million.
Returning to the chart, you may find that Dow has reduced its operating costs in recent years (by closing factories and reducing ineffectiveness). January It has set $ 1 billion of potential savings and expects it to reach $ 400 million by the end of this year.
Dividend campaigns offer two types of returns to investors: passive income from dividend and possible profit from the estimated share price. Together they are called complete return. Dividends are great when the stock price is stable or at least not visited. But if the share price has fallen (as in the case of DOW), even the high dividend yields will not be sufficient to compensate for those losses and therefore negative overall returns.
Industry giant 3m was in a similar situation. The growth was slowing down, the cost increased, and the 3m dividends became unproven. 3M has completed its health care business separation in 2024. April, and then reduced its quarter dividends from $ 1.51 for a share to $ 0.70. This interrupted the 64 -year increase in the series, removing the status of the 3m dividend king. But the decision was worth it.
Since 3M has paid all its dividends king, from 2024. February By 2025 On 25 July, the share price increased by 95.9% and its dividends are still 42.2% lower. A lower payment released expensive dry powder, which improved 3m flexibility and allowed it to speed up its turnover. Now, 3M is presenting the best results a year, and the investment dissertation has improved a lot.
Dividends are just as good as the company pays. And at the moment, DOW better improve your quality than to pay a particularly high harvest. However, even after the dividend reduction, DOW still gives a huge 5.5%because the stock is so beaten.
Some investors may want to wait and see attitude towards DOW. However, those who think that DOW can withstand this downturn may want to take a closer look at the purchase of shares now. The results are so scary and sentiment, so negative that even moderate results are probably celebrated by Wall Street.
Everything is said that Dow’s sale is a purchase option because dividend reduction was the right step and a better position the company to recover.
Consider this before buying DOW:
Motley Fool Stock Advisor A team of analysts just found what they think is 10 best stocks So that investors can buy now … and DOW wasn’t one of them. 10 stocks that reduced the incision can return the monster in the coming years.
Consider when Netflix This list consisted of 2004. December 17th … If you have invested $ 1,000 during our recommendation, at our recommendation, You would have $ 638,629!* Or when Nvidia Made this list in 2005. April 15 … If you have invested $ 1,000 during our recommendation, at our recommendation, You should have $ 1,098 838!*
Now it is worth mentioning Share advisor The average return is 1 049%-S&P 500, compared to 182 percent. Share advisor;
See. 10 stocks »
*The stock advisor returns from 2025. July 29th
Daniel Freu mayer has no position in any of the above shares. The Motley fool is positions and recommends 3m. The Motley fool recommends Sherwin-Williams. The Motley fool has a disclosure policy.
The largest shares in the S&P 500 simply reduced their dividend by 50%. It is astonishing the reasons why it can now be a purchase. initially released by The Motley Fool
