By Al Root
Dividend investors might not look at Dow Inc. and LyondellBasell Industries fondly after the chemical companies cut their dividends over the past year. The war in Iran has made the stocks worth a second look.
Dow and LyondellBasell haven't had it easy lately. Chinese overcapacity and natural-gas prices that rose more than oil prices, hurting competitiveness for the two companies, caused Dow shares to drop 40% over the past two years, trailing the S&P 500 index by more than 70 percentage points, while Lyondell shares are off 33%.
The drops reflect the hard times the companies had fallen on: Dow didn't generate positive free cash flow in 2025, after generating $5.6 billion in 2021, while Lyondell's dropped 93% from the $5.7 billion it generated in 2021. In July, Dow slashed its dividend by 50% to 35 cents per quarter. Lyondell followed suit in February, cutting its quarterly payout to 69 cents a share from $1.37.
Despite the cuts, both stocks still yield north of 4%, well above the 2.2% average for a dividend payer in the S&P 500. But after the recent pain, investors might worry about the safety of those payouts. Iran has dramatically changed the industry's supply-demand dynamic. One of the impacts is inventory-driven, says OPIS, the news and data energy service from Dow Jones: "Short-term, buyers may build inventory as prices increase, catalyzing a short-lived uplift in demand."
Higher freight rates in the Middle East would also provide European and U.S. producers with a short-term competitive benefit. Supply has also been reduced by the conflict, with an estimated 10% of global polyethylene, a benchmark plastic product, offline.
Both of those could be temporary factors, but the induced market tightness from the Iran-U.S. conflict can be the kick-start the commodity chemical market needed. At the macro level, a reduction in Iranian crude oil exports pushes up chemical feedstock costs, creating a price umbrella for natural-gas-based producers, notes Alembic analyst Hassan Ahmed. "At the micro level, Iran represents a meaningful exporter of polyethylene and methanol, and potential export constraints or project delays could materially tighten global supply/demand balances over the next several years," he says.
The changes prompted RBC Capital Markets analyst Arun Viswanathan to upgrade both Dow and Lyondell stocks to Buy from Hold on March 8. His price target for Dow shares went to $40 from $29, up 16% from recent levels. His price target for Lyondell went to $82 from $51, up 21% from recent levels. At those target prices, Dow and Lyondell would both yield a relatively attractive 3.5%.
Dow and Lyondell are very similar businesses, with similar market capitalization and a similar advantage using relatively low-price U.S. natural gas to make a variety of chemical products. There are differences. Lyondell is a world leader in polypropylene -- think the cap on a bottle of detergent. Dow will make things that go into the detergent bottle.
At the margin, Lyondell looks like the safer bet. Viswanathan's new earnings-per-share estimate of $4.24 easily covers the annual dividend of $2.76. He estimates Dow will earn 42 cents a share in 2026, not enough to cover the $1.70 annual payout, but things are still moving in the right direction. What's more, Dow is looking to get leaner, targeting $2 billion in profit improvement by cutting jobs, shedding underperforming assets, and investing in new products.
For investors looking for safety in a time of war, both of these dividend payers could make sense.
Write to Al Root at allen.root@dowjones.com
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(END) Dow Jones Newswires
March 13, 2026 21:30 ET (01:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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