Dow Inc. (DOW): Negative Free Cash Flow, High Yield, and Balance-Sheet Strain

Free-cash-flow shock and an outsized yield set the stage#

Dow Inc. reported a swing to negative free cash flow in FY2024 — free cash flow of -$151 million — even as the company distributed $1.97 billion in dividends and repurchased $494 million of stock in the year (FY2024 filings, accepted 2025-02-04). That cash-flow dynamic left Dow with net debt of $15.46 billion and a shares outstanding base implied by market capitalization (about 709.0 million shares at the current $24.82 price), producing a headline dividend yield near +11.3%. The combination — negative FCF, large shareholder payouts and elevated leverage — is the single most consequential development for the stock and frames the remainder of this analysis.

This outcome is notable because it creates a sharp disconnect between reported net income (which rose year-over-year) and the company’s cash-generation ability. That disconnect, together with recent quarterly earnings volatility and an active plaintiff-side investigation cited in public filings and market notices, increases headline risk and makes cash-flow trajectory the primary metric to watch going forward.

Earnings, margins and the cash-flow disconnect#

A close read of Dow’s FY2024 financials shows stabilizing top-line pressure but deteriorating operational leverage versus the prior multi-year base. Reported revenue for FY2024 was $42.96 billion, down from $44.62 billion in FY2023 — a year-over-year decline of -3.73% (calculated from the company’s FY2023 and FY2024 reported figures). Gross profit in 2024 was $4.61 billion, producing a gross margin of 10.73% (4.61 / 42.96) compared with 11.33% in 2023 and 19.61% in 2021. Operating income of $1.91 billion yields an operating margin of 4.45%, down sharply from 14.35% in 2021.

At the bottom line, reported net income rose to $1.12 billion in FY2024 from $589 million in FY2023 — a year-over-year increase of +90.15% (1.12 - 0.589 / 0.589). That rise in net income, however, did not translate to free cash flow: operating cash flow fell to $2.91 billion in FY2024 from $5.20 billion in FY2023, a decline of -44.04%, and free cash flow swung from $2.72 billion to -$0.151 billion, a -105.56% change. Those figures come from the company’s FY2024 cash-flow statement (filing accepted 2025-02-04).

The divergence between accounting net income and cash generation is driven by two proximate factors shown in the statements: a working-capital drag (change in working capital of -$1.62 billion) and a step-up in capital spending (capital expenditures of $3.06 billion in 2024 vs. $2.48 billion in 2023). Depreciation and amortization remained sizable at $2.89 billion (2024), which supports non-cash expense sheltering of earnings but does not relieve the cash shortfall.

Accordingly, while the firm produced positive net income in 2024, the operational cash cycle and higher capex pushed cash flow into negative territory once shareholder distributions and financing flows are considered.

Two financial tables: trend snapshots#

These tables use the company’s FY2021–FY2024 reported figures (filings accepted 2022–2025).

Balance-sheet metrics and valuation multiples — computed takeaways and a discrepancy#

Using the FY2024 figures, total debt of $17.64 billion divided by total stockholders’ equity of $17.36 billion gives a debt-to-equity ratio of ~1.02x (101.6%). The current ratio (total current assets $16.59B / total current liabilities $10.29B) is ~1.61x.

Using reported FY2024 EBITDA of $5.3 billion, the company’s net-debt-to-EBITDA computes to ~2.92x (15.46 / 5.3). The dataset’s provided TTM ratio shows 4.79x, which conflicts materially with the 2.92x calculation on FY2024 headline figures. This discrepancy likely reflects differing period definitions (TTM vs. single fiscal-year EBITDA, adjustments for non‑cash items or the inclusion/exclusion of certain operating items in the EBITDA definition). When encountering that conflict, I prioritize the company’s FY2024 reported EBITDA and balance-sheet closing net-debt because they are directly traceable to the FY2024 financial statements; however, the higher TTM figure is a warning that trailing twelve‑month adjustments or seasonal swings can widen leverage on a rolling basis. Investors should treat leverage as variable and monitor the company’s next four quarters for confirmation of the trend.

Market-value context: at a share price of $24.82 (latest quoted), the reported market capitalization is roughly $17.59 billion, implying about 709.0 million shares outstanding (market cap / price). The company’s reported dividend per share TTM of $2.80 produces a yield of roughly +11.28% at the $24.82 price point. The apparent yield is large relative to industry peers and must be weighted against sustainability given the negative free cash flow and payout ratios shown below.

Capital allocation — dividends, buybacks and leverage#

Dow paid $1.97 billion in dividends in FY2024 while repurchasing $494 million of stock. Those distributions occurred despite negative free cash flow for the year, which required the company to tap financing or draw on cash to fund payouts. Comparing dividends to reported net income for FY2024 (dividends $1.97B vs net income $1.12B) yields a cash-based payout that exceeded earnings by ~176% for the year. That ratio materially exceeds conventional payout comfort zones and helps explain why net debt rose from $13.46B at the end of FY2023 to $15.46B at FY2024 year-end.

A second, related observation: share repurchases have meaningfully scaled back from the pre‑2023 cadence (2022 repurchases at $2.33B), but the company continues to allocate cash to shareholders even while operating cash flow is under pressure. That combination elevates the importance of management’s near-term statements on dividend policy, free-cash-flow recovery and any contemplated asset sales or restructuring that could restore cash flow.

Recent quarterly volatility and execution signals#

Dow’s quarterly earnings in 2025 have shown notable dispersion versus consensus. The company posted an earnings surprise on 2025-04-24 where actual EPS came in at $0.02 versus an estimate of -$0.01425, and a larger miss on 2025-07-24 where actual EPS was -$0.42 versus an estimate of -$0.11 (quarterly releases, 2025). That pattern — a modest beat followed by a sizable miss — underlines the binomial nature of Dow’s near-term earnings visibility. Given the company’s exposure to commodity cycles, working-capital swings can swing quarterly cash flows materially, and that volatility is already visible in the operating cash flow and FCF trends.

Competitive and macro context — why margins have eroded#

Dow operates in cyclical, commodity-linked segments where feedstock spreads, global chemical demand and end-market manufacturing activity drive profitability. The multi-year trend in margins — gross margin from 19.61% in 2021 to 10.73% in 2024 — reflects a mix of weaker polymer and specialty chemical spreads, lower selling prices in more commoditized product lines, and margin pressure from raw-material cost variability. Those structural headwinds were compounded by working-capital build and higher capex in 2024.

Relative to peers, Dow has historically competed on scale and integrated value chains; however, the margin erosion implies reduced pricing power in certain segments and greater sensitivity to cyclical slowdowns. The company’s ability to protect margins will depend on mix improvement toward higher‑value products, supply rationalization, and the successful execution of any announced cost actions.

Legal and headline risks#

Public-market filings and market notices reference a plaintiff-side investigation (Pomerantz LLP) into company disclosures. While investigations do not equate to liability, they raise headline risk and could increase both legal costs and investor uncertainty. In a context where cash generation is already strained, the potential for incremental litigation expenses or disclosure remediation amplifies downside scenarios. Investors should monitor official SEC filings and Dow’s responses for developments.

Forward-looking estimates and analyst context#

Analyst consensus embedded in the dataset shows multi-year variability: FY2025 estimates imply an EPS loss (estimate EPS for 2025 -0.85483) with revenue estimates in the mid‑$40 billion range by 2027–2028. Forward enterprise-value-to-EBITDA projections compress from ~5.2x (2024) toward the mid‑4x range by 2028 in the dataset. Those forward multiples indicate the market and analysts expect EBITDA stabilization and modest compound growth over the medium term, but the 2025 consensus loss and negative FCF in 2024 suggest a near-term trough in earnings that must recover for multiple expansion to follow.

When reconciling near-term estimates with financial reality, note that the company needs operating-cash-flow and free-cash-flow improvement to reduce net debt-to-EBITDA and restore confidence in the dividend. The analyst consensus (as provided) shows a slowly improving EPS profile through 2028 (estimated EPS of $2.62 in 2028), but these projections depend heavily on margin recovery and stabilized working capital.

What this means for investors#

First, cash flow is the primary watch item. The FY2024 swing to - $151 million in free cash flow while paying $1.97 billion in dividends is not a technical footnote — it is the core dynamic that will determine dividend durability, leverage trajectory and the company’s ability to invest for growth. Absent a clear path to sustained positive FCF, the options are (a) reduce dividend payouts, (b) materially cut other capital uses, or (c) increase leverage — each of which carries distinct valuation and execution implications.

Second, margins must re‑rate from current cyclically depressed levels. Historical gross margins contracting from ~20% (2021) to ~10.7% (2024) demonstrate material downside when commodity spreads tighten. Management’s ability to shift mix toward higher‑value products, compress SG&A relative to sales, or extract procurement efficiencies will be determinative. Investors should press for specific, quantified margin-recovery roadmaps and monitor quarterly working-capital trends closely.

Third, the market is pricing high headline yield into the stock. The +11.3% yield at current prices looks attractive on its face but reflects heightened risk: payout ratios materially above net income and a negative FCF year weaken the yield’s quality. Investors seeking yield should therefore treat Dow’s distribution as contingent on cash‑flow recovery and management discipline rather than a stable return stream.

Fourth, leverage and legal risk are non-trivial. Net debt rose to $15.46B in 2024, and the presence of a plaintiff-side investigation increases the scope of contingent liabilities. Leverage metrics computed from FY2024 figures produce a net‑debt-to‑EBITDA of ~2.92x (using FY2024 EBITDA), but reported TTM metrics in the dataset show a higher ratio — investors should therefore track rolling twelve‑month leverage to detect any deterioration.

Near-term catalysts and indicators to monitor#

Key items that will drive re‑rating or further downgrades over the next 12 months are simple and data-driven. First, sequential quarterly operating cash flow and free cash flow: a return to positive FCF on a sustained basis (excluding one-off asset sales) would materially reduce headline risk. Second, guidance and margins: cadence of margin improvement and management’s ability to deliver gross- and operating-margin stabilization. Third, capital‑allocation announcements: any change to dividend policy, repurchase cadence, or material asset dispositions should be evaluated for both cash and strategic impact. Fourth, legal developments and disclosures tied to the Pomerantz inquiry: any material escalation would increase uncertainty and potentially raise reserves or legal expense.

Conclusion — the investment story in one paragraph#

Dow [DOW] is a large, integrated chemical company trading at a compelling headline yield while wrestling with a clear cash‑generation problem: FY2024 produced - $151MM of free cash flow even as the company sustained $1.97B in dividends and modest buybacks, leaving $15.46B of net debt and elevated payout pressure. The company’s reported net income improvement in 2024 masks a working-capital and capex-driven cash shortfall. Recovery hinges on margins and working-capital normalization; until those flows show consistent improvement, the dividend’s sustainability and the company’s leverage path will remain the principal risks to the valuation narrative. Investors should therefore prioritize incoming cash‑flow data and management’s explicit, quantifiable plan to restore FCF and address leverage, while weighing headline legal risk in their risk framework.

Sources and data references

Financial statement figures and cash flow line items are computed from Dow Inc.’s FY2024 financial statements (filing accepted 2025-02-04). Quarterly surprise data are from Dow’s 2025 quarterly releases. Public legal-notice references (plaintiff-side investigation) are from market filings and public announcements by investigation firms. Macroeconomic and peer-context sources referenced in the accompanying market analysis include BEA, BLS, Reuters and company filings and investor releases for peer companies cited in the broader market discussion.