Dow Stock: Does A 125-Year History Make This 5% Yield Safe?

Money, Profit, Finance, Business, Return, Yield

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Dow Inc. (NYSE: DOW) traces its roots back to 1897. Today, the company generates more than $57 billion in sales per year, has nearly 38,000 employees worldwide, and manufactures in 31 countries.

It makes a wide variety of products, ranging from additives and modifiers used in skin care, paints, and paper to polymers used in wires, cables, and packaging.

Over the past century and a quarter, the company has undergone many changes – acquisitions, spinoffs, and consolidations.

The current version of Dow has paid a dividend since 2019. It has remained the same at $0.70 per share each quarter, which comes out to a 5% yield.

The question is this: Is the dividend safe?

Let’s find out.

Free cash flow has been a bit inconsistent over the past few years.

Chart: Dow's Free Cash Flow

This year, free cash flow is forecast to drop to $3 billion from $5.5 billion as earnings per share fall from $4.88 in 2022 to $2.32 and revenue declines nearly 22%.

Dow pays $2 billion in dividends, so the projected payout ratio is a comfortable 67%.

As a result of the deteriorating free cash flow and the limited dividend history, it’s hard to declare the dividend safe. Should cash flow decay more than expected, there’s a reasonable chance that the dividend will have to be cut.

Dividend Safety Rating: C

Dividend Grade Guide

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