Why DOW Inc. Stock Is Down 27% Despite a 7% Dividend Yield—Investment Analysis

Dow Inc. [DOW] shares have experienced a steep 26.5% decline over the past six months, significantly underperforming the broader Chemicals Diversified industry, which saw only a 4.4% retreat. What’s particularly striking is that while the company maintains an attractive 7 percent dividend yield, the stock has plummeted 30.2% over the trailing year—substantially worse than both the S&P 500’s 24.1% gain and the chemical sector’s modest 1% loss. The divergence raises a critical question for income-focused investors: Is the high yield compensation enough to justify holding this troubled position?

Financial Strength Masks Market Concerns

Before diving into the bearish thesis, it’s worth noting that DOW’s underlying balance sheet remains robust. The company generated approximately $2.9 billion in operating cash flow throughout 2024 and maintains around $12 billion in total liquidity, including $2.2 billion in cash and equivalents. In December 2024, the company engineered a strategic infrastructure sale, securing definitive terms to divest a 40% stake in U.S. Gulf Coast assets to Macquarie Asset Management for roughly $2.4 billion upfront, with potential cash proceeds reaching $3 billion.

This financial flexibility enabled DOW to return $2.5 billion to shareholders in 2024—comprising $2 billion in dividends and $500 million in share repurchases. For investors targeting 7 percent dividend stocks, the 164% payout ratio initially appears unsustainable, yet the company’s substantial free cash generation and asset monetization strategy suggest the distribution remains defensible in the near term. However, this defensive strength contrasts sharply with operational headwinds that have eroded investor confidence.

Demand Collapse and Pricing Pressure: The Core Problem

The primary drag on DOW stock stems from catastrophic demand erosion across key end markets. European construction and manufacturing have stalled amid persistent inflation and diminished consumer confidence. China’s property sector remains anemic, with new home prices continuing their downward trajectory, cascading weakness into infrastructure and residential construction demand. Automotive demand in Europe has dried up completely due to weak consumer purchasing power.

These regional difficulties compound a critical pricing crisis in the Performance Materials & Coatings segment. Siloxane prices have compressed dramatically due to Asian capacity additions, particularly in China. While capacity expansion has decelerated lately, current oversupply is expected to persist through 2025, continuing to pressure realizations. Additionally, severe cold weather has spiked feedstock and energy costs—forcing the company to guide for a $100 million headwind in Q1 2025 alone, with consolidated earnings facing a $200 million sequential decline due to elevated input costs.

Technical Deterioration Signals Deeper Trouble

From a technical perspective, the picture remains decidedly negative. DOW has traded below its 200-day simple moving average continuously since October 7, 2024. More critically, the stock breached its 50-day SMA, and the two key moving averages experienced a death crossover on July 29, 2024—a bearish signal indicating sustained downward momentum. This technical breakdown, combined with negative earnings estimate revisions over the past 60 days, suggests institutional investors have already begun de-rating the stock ahead of deteriorating guidance.

Growth Projects and Cost Discipline: The Silver Lining

On the constructive side, DOW is investing in transformational initiatives that could reshape its earnings profile by 2030. The company’s Decarbonize and Grow, and Transform the Waste strategies target more than $3 billion in incremental annual earnings by decade’s end. The Fort Saskatchewan Path2Zero project in Alberta, Canada—greenlit by the board in November 2023—represents the crown jewel. This net-zero integrated ethylene cracker will expand polyethylene capacity by 2 million metric tons annually and is projected to generate $1 billion in annual EBITDA growth throughout economic cycles while decarbonizing 20% of global ethylene capacity.

The company has already secured a long-term hydrogen supply agreement with Linde to support the project. Meanwhile, management is demonstrating cost discipline through a $1 billion cost reduction program targeting $500-$700 million in direct cost savings and workforce optimization (approximately 1,500 roles eliminated globally). Capital spending will be trimmed by $300-$500 million in 2025. These actions are anticipated to deliver roughly $300 million in benefits this year, with full realization by 2026.

Valuation Context and Peer Comparison

At a forward P/E of 17.23X, DOW trades at only a 1.1% discount to the industry average of 17.43X—a modest premium given its growth potential but questionable given current headwinds. This valuation appears stretched relative to near-term earnings trajectory.

Peer performance highlights this disparity starkly. LyondellBasell Industries [LYB] and BASF SE [BASFY] have lost 20.4% and only 0.6% respectively over one year. Meanwhile, Eastman Chemical [EMN] has gained 18.2%, outperforming DOW by nearly 50 percentage points. The divergence suggests the market has priced in structural concerns specific to Dow Inc.'s business model and geographic exposure.

The Investment Verdict

DOW presents a classic value trap for dividend hunters. While the 7 percent yield appears tempting and the company’s financial position remains defensible, the combination of deteriorating demand visibility, persistent pricing pressure, negative earnings revisions, and technical breakdown creates too much near-term downside risk. The growth projects are compelling but won’t materially impact earnings until 2026 at earliest.

For investors seeking 7 percent dividend stocks with better near-term catalysts, the current risk-reward in DOW is unfavorable. The company carries a Zacks Rank of #5 (Strong Sell). Patience is warranted until macroeconomic conditions stabilize, feedstock costs normalize, and the technical pattern shows evidence of reversal. Accumulating at higher price levels would be more prudent than buying this dip.