LyondellBasell (LYB) Financial Update: Dividend Risks Amid Declining Earnings and Strategic Shifts

Introduction: A Dividend Under Pressure Amid Financial and Sector Challenges#

LyondellBasell Industries N.V. (LYB has drawn attention with its high dividend yield of 8.57%, a figure that stands out in the petrochemical sector. However, recent financial disclosures reveal a sharp decline in earnings alongside a payout ratio exceeding 160%, flagging concerns about the sustainability of these dividend payments. This tension between attractive income and underlying financial strain is a defining feature of LYB’s current market narrative.

Recent Financial Performance and Earnings Dynamics#

LYB’s latest fiscal year ended 2024 shows a net income of $1.36 billion, down significantly from $2.11 billion in 2023 and $3.88 billion in 2022. Correspondingly, the net income margin has contracted to 3.37% in 2024, compared to 5.14% in 2023 and 7.69% in 2022 (Reuters. Operating income has also shrunk to $1.82 billion in 2024, reflecting a margin of 4.51%, which is less than half of the 7.43% recorded in 2023.

This decline is further underscored by the earnings per share (EPS) falling in tandem, with the trailing twelve months EPS at $3.3 but a year-over-year EPS growth rate of -35.76%. The company's price-to-earnings (PE) ratio stands at 21.76x, suggesting the market prices in some recovery but also signaling elevated risk given the earnings contraction.

Earnings Surprises and Forecasts#

LYB’s earnings announcements have been volatile recently. For instance, the Q1 2025 EPS missed estimates at $0.33 versus an expected $0.43. Conversely, the April 2025 quarter saw an upside surprise with actual EPS of $0.54 against an estimate of $0.36. Analysts remain cautious, with consensus revenue estimates projecting a decline to around $30.4 billion in 2025 from over $40 billion in 2024 and a modest EPS rebound forecasted for 2025 at $3.38 (MarketWatch.

Strategic Asset Sales and Impact on Cash Flows#

LyondellBasell has recently executed significant asset sales in Europe, notably to AEQUITA, aimed at optimizing its capital structure and reducing debt. These sales, while strategically sound for deleveraging, have materially compressed free cash flow (FCF), which dropped from $4.23 billion in 2022 to an estimated $1.98 billion in 2024.

The impact is evident in the cash flow statement, with capital expenditures remaining high at approximately $1.84 billion in 2024 and dividends paid totaling $1.72 billion. This results in a payout ratio that exceeds the company’s net income, raising questions about the sustainability of current dividend levels.

Source: Monexa AI

Dividend Analysis: High Yield Meets Elevated Risk#

LYB’s dividend yield of 8.57% is attractive in a low-yield environment, yet this comes with a payout ratio of 163.08%, indicating the company is distributing more in dividends than it earns in net income. This level of payout is typically unsustainable without significant cash reserves or asset sales.

The dividend history shows stable quarterly payments of approximately $1.34 per share, but the absence of growth over the past five years signals a plateau possibly driven by financial caution. Investors seeking income must weigh this against the risk of dividend cuts if earnings and cash flow do not improve.

Industry Context: Overcapacity and Margin Pressures#

The global petrochemical sector is experiencing overcapacity, particularly in olefins and polyolefins, due to increased ethane and LPG exports from the U.S. This supply glut has compressed margins across the industry, impacting LYB’s profitability. The company’s gross margin declined to 11.32% in 2024, down from 12.79% in 2023 and a peak of 19.01% in 2021, reflecting margin erosion driven by sector dynamics.

Moreover, the shift towards sustainability and circular economy solutions, while strategically necessary, demands capital investment and operational adjustments that pressure short-term earnings.

Balance Sheet and Financial Health#

LyondellBasell maintains a solid balance sheet with total assets of $35.75 billion and total liabilities of $23.16 billion as of 2024 year-end. The company’s net debt stands at $9.55 billion, slightly improved from $9.61 billion in 2023.

Liquidity remains comfortable with a current ratio of 1.83x, indicating sufficient short-term asset coverage for liabilities. The debt-to-equity ratio of 1.04x reflects moderate leverage.

Source: Monexa AI

What Does This Mean for Investors?#

Key Takeaways:#

• Dividend sustainability is a key concern: LYB’s payout ratio above 160% signals a risk of dividend cuts if earnings do not rebound.
• Earnings and cash flow are under pressure: Declining net income and reduced free cash flow from asset sales limit financial flexibility.
• Strategic asset sales aim to reduce debt: While beneficial long term, these reduce near-term cash available for dividends.
• Sector headwinds continue: Overcapacity and margin compression in petrochemicals challenge profitability.
• Balance sheet remains solid: Moderate leverage and strong liquidity provide some cushion.

Strategic Implications:#

Investors should closely monitor LYB's upcoming earnings announcement scheduled for August 1, 2025, to gauge whether the company can stabilize earnings and cash flows. The strategic asset sales may improve leverage ratios but could constrain dividends if free cash flow remains subdued.

Furthermore, LYB's capital allocation priorities suggest a balancing act between debt reduction, strategic investments in sustainability, and shareholder returns. Management's execution in these areas will be critical to restoring investor confidence.

Conclusion#

LyondellBasell’s current financial profile paints a picture of a company navigating significant challenges amid a difficult petrochemical industry environment. The high dividend yield masks underlying risks related to earnings declines and cash flow constraints. While the company’s strategic moves to deleverage and invest in growth are positive, the near-term outlook for dividend sustainability remains uncertain.

For investors, LYB represents a cyclical value proposition that demands careful scrutiny of earnings trends, dividend policies, and sector dynamics. The forthcoming earnings release and management commentary will be pivotal in shaping the investment narrative.

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References#

• MarketWatch Analyst Estimates for LYB
• Reuters Financials for LYB
• The Motley Fool on LyondellBasell
• Financial data sourced from Monexa AI