Daniel Foelber, The Motley Fool

Sat, Jun 7, 2025, 1:34 AM7 min read

• Dow Inc. is under pressure due to weak customer demand, global competition, and high costs.

• Management doesn't want to cut the dividend, but it could be a good choice given cost pressures.

• Even if Dow cut its dividend in half, it would still have an excellent yield.

• 10 stocks we like better than Dow ›

Commodity chemical giant Dow Inc. (NYSE: DOW) is hovering around a five-year low and is now down around 50% from its spin-off price when DowDuPont split into three separate companies in April 2019.

Dow has kept its dividend the same for the last six years. But since the stock has been beaten down so much, Dow's yield has jumped to a whopping 10.3% at the time of this writing -- making it the highest-yielding component in the S&P 500 (SNPINDEX: ^GSPC).

Here's why Dow's challenges persist and why the dividend stock could be worth buying now, even if the company reduces its payout.

Dow makes commodity chemicals -- mainly plastics and synthetic rubber. Dow has hundreds of products that are used either directly or indirectly across virtually every industry in the economy -- from electronics to food and beverage packing, textiles, construction, industrial applications, healthcare, cosmetics, household products like detergents and dish soaps, and more.

Since these products are commodities, they lack pricing power. This is similar to the dynamic in oil and gas, where a gallon of unleaded gasoline sold at ExxonMobil is virtually the same as a gallon sold at Chevron. Consumers will largely make a purchase decision based on price, not brand. So Dow must achieve scale and operating leverage to ensure it can produce products at a competitive cost relative to its peers.

Economic growth typically coincides with higher commodity chemical demand. But lately, two factors have been working against Dow. Demand is low across several end markets due to higher borrowing costs from elevated interest rates and slowing economic growth in key markets -- namely Europe.

Another major challenge is competition. China has been ramping up investments in manufactured goods -- from chemicals to solar panels -- to take market share on the global stage. If China can produce chemicals sold by Dow for a cheaper price, it can undercut Dow on pricing.

Dow is also working to become a more sustainable company by investing in plastic waste recycling and the world's first net-zero emissions integrated ethylene cracker -- known as its Path2Zero project in Alberta, Canada. However, on its first-quarter 2025 earnings call, Dow said that it is pausing Path2Zero to reduce its spending. Dow estimates that the pause will save the company $1 billion and reduce enterprise spending to $2.5 billion from $3.5 billion.