LyondellBasell (LYB): Dividend Strain as Cash Flow Collapses and Leverage Looms

Immediate red flag: free cash flow has collapsed while cash dividends remain large#

LyondellBasell [LYB] reported free cash flow of $1.98B for fiscal 2024, down from $4.23B in 2022, even as the company returned $1.72B in dividends in 2024. That divergence — a fiscal-year free-cash-flow-to-dividend gap that tightens the company’s cash runway — is the single most important development for investors today. The 2024 outturn leaves little margin for error if cyclical pressures persist or if operational cash generation weakens further in 2025–26 (company filings, FY2024 cash-flow statement) LyondellBasell FY2024.

This is not a marginal slowdown; it is a structural shift in the cash profile. Put simply: LyondellBasell’s distribution policy remains large in absolute dollars while cyclical earnings and cash generation have contracted materially, forcing management into active cash-conservation measures and asset-sale programs.

Financial performance: revenue, margins and profitability have turned decisively lower#

Revenue has declined from $50.45B in 2022 to $40.3B in 2024, a cumulative fall that reflects weaker demand across end markets and compressed commodity spreads. Gross profit dropped from $6.6B (2022) to $4.56B (2024) and operating income fell from $5.10B (2022) to $1.82B (2024) according to the FY2024 income statement filing (filed 2025-02-27) LyondellBasell FY2024.

The company’s margin trajectory underscores the cyclical pressure. Gross margin moved from 13.09% (2022) to 11.32% (2024) and operating margin compressed from 10.11% (2022) to 4.51% (2024). Net income fell to $1.36B in 2024 from $3.88B in 2022, reflecting both narrower spreads and lower volumes. These margin moves are large enough to require active remedial measures rather than passive wait-and-see management.

Cash flow dynamics and the dividend math — independent calculations#

To evaluate dividend sustainability, I recalculated coverage metrics from the raw annual cash-flow and income-statement figures rather than relying on headline TTM ratios that vary by provider. Key independent calculations (using fiscal-year 2024 figures):

• Free cash flow (FCF) 2024 = $1.98B (reported). Dividends paid 2024 = $1.72B (reported). FCF-based payout = 1.72 / 1.98 = +86.87%. This means fiscal-2024 FCF covered nearly 87% of the dividend cash outlay.

• Earnings-based payout (2024) = dividends paid / net income = 1.72 / 1.36 = +126.47%. On an earnings basis, dividends exceeded 2024 net income by a wide margin.

• Debt metrics using balance-sheet year-end figures (2024): total debt = $12.92B, net debt = $9.55B (total debt less cash of $3.38B), EBITDA = $3.61B (2024). Net debt / EBITDA = 9.55 / 3.61 = +2.65x. Debt / equity = 12.92 / 12.46 = +103.70%.

These calculations differ materially from some TTM or market-provider numbers in the dataset (for example, a reported net-debt-to-EBITDA of +5.28x in a TTM field). The divergence stems from differing windows: our fiscal-year 2024 denominator uses the reported 2024 EBITDA of $3.61B, whereas some trailing-12-month (TTM) metrics in vendor feeds incorporate 2025 partial-year weakness (lower EBITDA) or different adjustments to EBITDA. I highlight both sets of numbers below when relevant so readers can see the sensitivity to the chosen accounting window.

Data table — Income statement and cash-flow highlights (2021–2024)#

(Primary figures from company filings: income statements and cash-flow statements, FY2021–FY2024) LyondellBasell FY2024.

The table makes the trend clear: FCF has declined by more than half from 2022 to 2024 while dividend cash outflows have remained large in absolute terms.

Data table — Balance sheet snapshot and leverage (2021–2024)#

Calculated current ratio = total current assets / total current liabilities (2024: 12.27B / 6.71B = +1.83x) and net-debt-to-EBITDA (fiscal 2024) = +2.65x (9.55 / 3.61). These leverage multiples show the company is not in a distressed range by typical covenant definitions, but flexibility is constrained when cash generation is weak.

Why the numbers matter: capital allocation and management’s response#

Management has reacted with a three-pronged approach: reduce discretionary CAPEX, delay or defer growth projects, and market non-core European assets to generate cash. The company cut 2025 CAPEX guidance to about $1.7B and signaled further trimming into 2026. Management has also set an explicit target to generate at least $1.1B of incremental cash through 2025–26 via these levers (company disclosures). Those moves are logical when a cyclical downturn hits, but they carry trade-offs: delaying growth projects and selling assets can preserve near-term distributions at the expense of long-term earnings optionality.

The arithmetic is instructive. Using fiscal-2024 FCF as the base, a realized incremental $1.1B would lift 2024-equivalent FCF to roughly $3.08B, re-establishing a larger cushion against the dividend. But this assumes asset-sale proceeds are realized at reasonable valuations and that volumes/pricing do not deteriorate further. If EBITDA in 2025 remains materially below 2024 (as some TTM indicators suggest), the net-debt-to-EBITDA metric could climb toward the higher mid-single-digit range reflected in some market-provider TTM feeds — a scenario that would materially tighten options.

Dividend sustainability: multiple lenses and the core tension#

There are several ways to measure dividend coverage; each tells a different story because of timing and definitional differences:

• Fiscal-year FCF coverage (2024): +86.87% (dividends paid / FCF) — close to parity but not generous.
• Fiscal-year earnings coverage (2024): +126.47% (dividends paid / net income) — dividends exceeded accounting earnings.
• TTM per-share metrics reported by some data providers (dividend per share / free-cash-flow-per-share) are higher because they reflect weaker recent quarters and different denominators; for example, a provider-level free-cash-flow-per-share TTM of 4.7 vs dividend-per-share of 6.76 produces a payout of +143.83%.

These discrepancies matter. Fiscal-2024 arithmetic shows the company narrowly covered the dividend with FCF, but not with net income. Market-provider TTM calculations suggest a much larger shortfall, reflecting the deterioration in cash generation during 2025. The policy implication: dividend safety depends on timely realization of management’s cash-improvement program or a willingness to reset distributions.

Competitive and industry context#

LyondellBasell is a large, integrated chemicals and polymers player. Its scale and geographic footprint are competitive advantages in stable cycles, but the company is exposed to commodity cyclicality. Peers such as Dow, DuPont and Eastman face similar demand and feedstock pressures, but peer payout profiles vary: some competitors have lower headline FCF-based payouts and stronger balance-sheet cushions. LyondellBasell’s relatively high absolute dividend and mid-cycle leverage make it more exposed to a prolonged downturn than peers that maintain conservatively lower cash distributions.

Strategically, selling higher-cost European assets makes sense to improve long-term competitiveness and reduce cyclically sensitive exposure. But divestitures executed in weak markets can depress proceeds and reduce future upside when recovery arrives.

Forward-looking signals: analyst estimates, valuation and catalysts#

Analyst estimates in the dataset show revenue expectations around $30B–$31B (2025–2027) in the base-case models and EPS recovering over time (2025 estimated EPS ≈ 2.80, 2026 ≈ 4.54, 2027 ≈ 5.73, 2028 ≈ 8.15 per available consensus lines). Forward EV/EBITDA multiples decline modestly across those years in the provider summary, suggesting markets expect some recovery in profitability if cyclicality reverses.

Valuation multiples reported vary by timeframe: a trailing PE appears stretched relative to depressed EPS (headline PE figures in vendor feeds are inconsistent), while forward P/E estimates show a broad range (2025 forward P/E ≈ 23.98x, 2026 ≈ 13.35x). Those multiples are sensitive to the timing of the earnings rebound. The immediate catalysts to watch are (1) asset-sale proceeds and timing, (2) quarter-to-quarter cash from operations (does it eclipse distributions?), and (3) margin recovery in core polymers spreads.

Key risks and trigger events#

The principal risks and concrete cut triggers include continued FCF shortfalls, failure to execute asset sales or realize expected proceeds, a deeper-than-expected end-market downturn (construction, automotive), and adverse feedstock cost moves or trade-policy shocks. A practical trigger for a dividend reset would be two to three consecutive quarters where operating cash flow is negative after distributions and asset sales fail to plug the gap.

What this means for investors#

For income-focused shareholders, the headline take-away is that the dividend is no longer an iron-clad certainty; it is contingent on management’s ability to execute CAPEX cuts and asset sales and on an end-market stabilization within 12–18 months. For total-return investors, the situation presents both downside risk (if dividend is cut and earnings remain weak) and potential upside if management can materially reduce cash burn and markets firm earlier than consensus.

Investors should monitor three short-term items closely: quarterly operating cash flow versus distributions, the pace and pricing of European asset divestitures, and CAPEX guidance vs actual spend. Together these will determine whether the company can re-establish a comfortable FCF cushion or must reset distribution policy.

Conclusion: tactical preservation vs strategic cost#

LyondellBasell’s current position is a classic capital-allocation tension: preserve near-term shareholder distributions by cutting CAPEX and selling assets, or protect long-term growth optionality by conserving assets and accepting a distribution reset. The arithmetic is unforgiving: fiscal-2024 FCF nearly covered the dividend but left little buffer, and 2025 partial-year weakness (reflected in TTM vendor feeds) raises the probability of a distribution reset absent quick improvement in cash generation.

Management’s cash-conservation plan (targeting at least $1.1B incremental cash through 2025–26) could restore breathing room if achieved and if markets stabilize. Execution risk is significant, however, and the stakes are clear: preserving a 14-year streak of dividend increases would come at the cost of deferred growth or asset monetization that may be expensive in a weak market.

For stakeholders, the remaining question is less about whether the company can cut costs — it can — and more about whether those cuts and asset sales can be executed quickly and at value. The next several quarters of cash-flow prints and the timing/price of asset sales will decide whether the dividend remains intact or whether the company must make a politically difficult but financially necessary reset.

What to watch next: quarterly operating-cash-flow figures vs distributions, announcement/timing of material asset-sale proceeds, and updated CAPEX guidance. These items will directly determine whether the current dividend level is sustainable or materially at risk.

(Company financials and disclosures referenced above are taken from LyondellBasell’s FY2024 filings and accompanying cash-flow and balance-sheet data filed Feb. 27, 2025) LyondellBasell FY2024.