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Up-and-Down Dow Chemical Shares Come With Soothing 4.3% Dividend Yield

5/22/2012 12:56:00 PM
Referenced Stocks:DOW

Let's start with the central fact dividend investors need to know about Dow Chemical ( DOW ). The company is financially solid, but this is a really, really cyclical stock. As one of the world's largest petrochemical makers, Dow's profits, revenues, and share price routinely soar and tumble along with the global economy. Even in stable financial times when chemical prices are strong, one industry player or another goes for the gold by opening a new plant -- flooding the market with excess capacity and squashing margins. Or, as is currently happening, an unexpected glut can send natural gas prices plunging and that benefits Dow's profit margins. Take a look at this stock chart - but don't get seasick.

DOW data by YCharts

But. Dow Chemical's dividend tends to move around a lot less than its profits do. When the wheels came off the economy a few years ago, directors broke a 97-year string of not cutting its payout - but last month directors bumped up the dividend by 28 percent. That's why the stock is yielding an attractive 4.3% these days.

DOW Dividend Yield data by YCharts

Bottom line: While Dow's price volatility can be unsettling, the stock's historically solid and relatively stable yield makes this a comfortable holding for dividend investors. Of course, yield-oriented dividend investors should always remember we're buying the underlying stock as well, so it makes sense to study up on the company's fundamentals. The stock symbol links above can help you get started, and a careful read of the company's 10-K annual report is always worth the time.
