The Undervalued Dividend Powerhouse You Can’t Afford to Miss This August

Wall Street's sleeping on this cash-printing machine—wake up and smell the dividends.

Deep value meets high yield in a market that's forgotten how to price fundamentals. While meme-stock gamblers chase pumps, this old-school cash generator keeps delivering like a Swiss clock.

Why this isn't another 'value trap'

Forget the zombie companies dressing up balance sheets with accounting tricks. This play actually earns its multiple—with real cash flows that fund real shareholder payouts.

The August advantage

Seasonal dips meet institutional blindness as analysts take summer vacations. Perfect timing to load up before the herd remembers what 'fundamentals' mean.

Bonus jab: Meanwhile, crypto bros are still waiting for their 'passive income' staking rewards to offset 90% drawdowns.

Image source: Getty Images.

The downturn drags on

Dow makes a variety of materials that are used across the economy. Its main products include polyethylene (packaging, industrial applications, consumer goods, etc.), polyurethane (insulation, foam, coating, adhesives, sealants, etc.), silicones, (fluids, lubricants, gels, etc.), and more. Since these are commodity chemicals, Dow doesn't have much of a brand premium compared to its competitors. Like buying gasoline, the purchase decision mainly depends on price. This makes Dow sensitive to changes in supply and demand, input costs to produce its products (like feedstocks, fuel, materials, labor, etc.), and global competition.

The chemical industry has been in a prolonged downturn that is getting worse because of global supply chain disruptions and trade tensions. Demand is soft, especially in Europe and China. Higher interest rates have elevated borrowing costs, which reduces demand because it lowers the return on investment for Dow's customers. Competition is intensifying from China as the country looks to control a larger share of its supply chain.

Dow had been hoping that it could maintain its high dividend and hold out until the cycle turned. But its latest earnings report marked a noticeable step change in management's tone. Now, Dow is calling the operating conditions a "lower-for-longer earnings environment," as Dow goes on the defensive by focusing on capital preservation and protecting the balance sheet rather than appeasing shareholders with a high payout. So cutting the dividend by 50% was a necessary step in taking decisive action to ride out the downturn.

Dow CEO Jim Fitterling said the following on the second-quarter earnings call about the extent of the slowdown:

I don't think the mid-cycle earnings of the company has changed. I think the timeline is what's changed. We're in the third year of this downturn. And with the trade negotiations and kind of a new world order and the trade rebalancing that's happening, it's hard to predict how long it's going to take us to recover. But it feels like we are reaching a conclusion of these negotiations, which I think is the first step.

Dow doesn't see a reasonable timeline for a recovery, so it believes it is in the best interest of its shareholders and the well-being of the company to cut the dividend, endure this challenging time, and then chart a path toward growth.

A boom in 2021 caused an oversupply in the chemical industry. That overcapacity, paired with competition and lower demand from key markets, has eroded pricing power for chemical giants like Dow. Profitability has gone out the window, as companies are left scrambling just to manage costs. Part of the cost management strategy includes reducing operating expenses -- which means taking supply offline.

Taking a glass-half-full approach

Last month, Dow announced the shutdown of upstream European assets -- including an ethylene cracker, an industrial intermediates and infrastructure asset in Germany, and a basic siloxanes plant in the U.K. The moves will result in noncash write-downs of $630 million to $790 million, but they will boost Dow's cash FLOW by saving on operating expenses.

In addition to operating cost reductions, Dow's 2025 capital expenditures (capex) are now expected to be $2.5 billion, which is $1 billion less than the original plan.

In its second-quarter 2025 report from Aug. 1, LyondellBasell announced the planned sale of select European assets, delayed construction on its propylene plant expansion at its Channelview Complex in Texas, and an update on its cash improvement plan, which will reach $600 million in savings in 2025 and another $500 million in 2026.

The widespread implementation of cost-saving measures and pullbacks in capex by multiple industry heavyweights will take supply off the market. As Dow, LyondellBasell, and others become less capital-intensive and leaner, they should be able to capitalize on margin improvement when demand in key industries recovers.

Cyclical downturns can always get worse before they get better. But the factors that contribute to a recovery usually have to do with market dynamics shifting in favor of producers rather than buyers. Drastic spending cuts and plant closures will improve the supply side of the equation, but it's worth noting that the demand side isn't showing signs of turning the corner. On its second-quarter earnings call, Dow noted that sales and volumes declined across key business segments -- which is saying something considering how poor second-quarter 2024 volumes were already.

Buy Dow for deep value

Drastic cost cuts and a bleak outlook through at least 2026 illustrate the extent of the cyclical downturn. However, there are reasons to believe that the bottom could be in, given cuts in operating expenses and capex.

If we estimate cost savings by the end of 2026 of about $1 billion, close to $1 billion in savings from the 50% dividend cut, and $1 billion in lower capex this year compared to earlier forecasts (and likely lower capex next year), Dow should be on track to exit 2026 as a much leaner company. It will take Dow time to ramp up when the cycle recovers, but that's better than being overextended and amplifying losses in the NEAR term.

With the stock price crushed and the dividend still yielding a whopping 6.4% even after the cut, Dow stands out as an intriguing DEEP value stock for patient investors.