At first glance, this is a prime example of a value stock. Stable cash flow, dividend in excess of 9%, valuation multiples well below the market average. The company produces products that the global economy cannot do without, and its market position is among the top in the industry. And yet investors are not interested. In an era of growth stories, technology and green initiatives, this company seems like a relic of the past - big, heavy, not sexy enough. But that may be a fundamental misconception.

For beneath the surface, a quiet but strategically crucial transformation is taking place. Management is divesting nonprofit assets, investing heavily in advanced recycling technologies, and reshaping the manufacturing base to fit the new ESG paradigm. The goal is not just to survive the cycle, but to become a leader in higher value-added circular plastics and specialty chemicals. Add to that a conservative balance sheet, a long history of return on capital and management's determination to protect the dividend at all costs - and you have a company that could surprise on all fronts in the years ahead. While the market looks back, this company looks forward.

✅ Top points of analysis

• Dividend yield over 9%among the highest in the S&P 500
• EV/EBITDA below 10x, significantly cheaper than competitors
• Free cash flow of $1.5 billion despite cyclical downturn
• Portfolio restructuring: Refinery divestment, focus on specialty chemicals
• Investment in recycling and ESG Billions of dollars
• FCF yield around 8%, underlined by conservative debt
• 13-year growing dividend, strong continuity despite profitability fluctuations
• Possible re-rating of the stockif the market appreciates the shift to more sustainable segments

Basic company profile

A company that today is primarily viewed by investors as a dividend giant is in fact one of the largest chemical concerns in the world. Its products are found in almost every sector - from packaging materials, automotive and consumer goods to agriculture, healthcare and construction. We are talking about the US-Dutch giant LyondellBasell Industries $LYB, which was formed in 2007 by the merger of the European Basell and the American Lyondell Chemical Company.

LyondellBasell is today a global leader in polyolefins, polymer chemistry and recycling technologies. It operates in three main segments:

The company has manufacturing facilities on four continents and its customers range from global FMCG corporations to industrial manufacturers. Although its core business remains cyclical, the company has consistently focused on higher added value, more stable margins and sustainable growth. A key step was also the decision to to sell the Houston refinerywhich marks a deliberate exit from the more volatile part of the business.

Financial performance

From a numbers perspective, LyondellBasell is in a transition phase. After a record year in 2022 (due to post-covide demand and high plastics prices), there was a downturn in 2023, which carried over into the first half of 2024. Yet the company remains highly profitable and generates strong free cash flow, which allows not only for the dividend payment but also for continued investment in transforming the business.

• Revenues: $38.1 billion
• EBITDA: Approximately $3.0 billion
• Net profit: $1.06 billion
• Free cash flow: $1.51 billion
• Gross margin: ~14 %
• EBITDA margin: ~7,8 %
• CAPEX: ~$2.0 billion (much of which goes to recycling and ESG projects)

Q1 2025 showed signs of stabilization - revenues remained more or less flat YoY, EBITDA margins improved slightly due to lower inputs and restructuring savings. The results so far confirm that the company is able to maintain profitability even in a lower demand environment.

Management and capital allocation

The current transformation of the company is driven by Peter Vanacker, CEO since 2022, who has brought a new strategic vision to LyondellBasell. Vanacker has experience from his leadership of Finland's Neste - a world leader in renewable fuels - and his arrival signalled a shift away from traditional petrochemicals towards more sustainable and specialty chemicals.

• The sale of the Houston refinery: The company divested one of the least profitable and environmentally burdensome parts of its business. The move not only improved capital efficiency but also reduced volatility in profitability.
• Recycling and ESG strategy: Launching projects in the field of advanced recycling (e.g. MoReTec technology), building new plants for processing plastic waste, working with partners in Europe and Asia.
• Capital discipline:
• • Dividend policy remains a priority - the company pays a dividend even in periods of weaker profits.
  • Acquisitions are selective, focusing on ESG and specialty chemicals.
  • CAPEX allocated to projects with higher return on capital (typically >15% IRR).

Management consistently communicates that the goal is not to maximize short-term margins, but to long-term shareholder value creation. This is matched by a strategy of reinvesting most of the free cash flow back into the company, particularly into technological upgrades and the circular economy.

Dividend policy

LyondellBasell's dividend yield is among the highest across large U.S. companies - currently around 9,4 %, despite a decline in profitability in recent quarters. The company has built a reputation as a reliable payer that protects its dividend payout as one of its top capital allocation priorities.

• Payout: Quarterly, currently $1.27 per share
• Yield: ~9.4% (at a share price of ~$59)
• Payout ratio: ~165% of TTM earnings (EPS ~$3.25) - thus well above sustainable levels
• History:
• • Stable or increasing dividend every year since IPO in 2010
  • Regular special dividends in years with FCF surplus (e.g., 2021-2022)

But this approach raises an important question: Is such a high yield sustainable in the long term?

Current data suggests that the firm is able to fund the dividend from cash flow, but not from net income. That is, unless FCF consistently levels off above $2 billion per year, management may be forced to reduce it - especially in an environment where it also wants to fund billions of dollars of ESG investments.

On the other hand, it should be added that low debt (net debt/EBITDA <2×) and a strong liquidity position give the company time and room to recover without the immediate need to cut the dividend.

Valuation: DCF model and scenarios

At first glance, LyondellBasell may appear to be a typical case of a value stock - high dividend yield, low earnings multiples and a stable market position. But a closer look makes it clear that the key to valuing this stock lies not in historical metrics, but in the future: that is, whether the company can actually manage the transformation towards more sustainable and profitable segments.

📌 DCF fair value per share: $63-68

➡️ Current price around $59 means the stock is slightly undervaluedand the valuation does not fully factor in the potential for margin improvement and a move into specialty products.

Development scenarios

Sensitivity table (WACC vs. growth)

➡️ Valuation is sensitive to FCF and WACC growth - there is room for upside, but the market remains skeptical for now due to weaker quarters and payout policy.

Comparison with competitors

Within the global chemical companies, LyondellBasell is in an odd position: not the largest, not the fastest growing, but its efficiency and shareholder payout are among the most significant in the industry. And importantly - its valuation remains well below the sector averageoffering an asymmetric risk/reward investment ratio.

• Valuation: Among the cheapest, even with weaker EPS
• FCF yield: Above 8% - the market does not yet believe it is sustainable
• Dividend: unmatched among peers
• ROIC: Better than most chemical companies, despite being a "commodity" segment

➡️ LyondellBasell is perhaps the most attractive company in its sector in terms of value for money. But investors are still hesitant to believe the transformation story.

Growth potential and expansion

Although LyondellBasell is seen as a mature, cyclical basic chemicals company, there is a major transformation underway beneath the surface. The company is investing billions of dollars in technology to prepare it for a future with stricter ESG standards, pressure to recycle, and customer demand for sustainability. The goal is not to maximize production volume, but to to add value and reduce earnings volatility.

• MoReTec: A proprietary chemical recycling technology for plastic waste that enables the remanufacture of polymers with properties comparable to virgin plastic.
• Investments in Europe and the USA: New plants dedicated to the processing of difficult-to-recycle plastics (e.g. LDPE, PP).
• Target by 2030: Up to 2 million tonnes of recycled or renewable material per year.

• Diversification beyond conventional polyolefins into areas with higher margins: Composites, functional polymers, additives.
• Strengthening the Advanced Polymer Solutions (APS) segment, which has growth potential due to demand for lightweight, durable and sustainable materials (e.g. for e-mobility or construction).

• Asia: Growing demand for quality plastics in India, Indonesia, China. Strategic joint ventures e.g. with Sinopec.
• Latin America: Focus on plastics for agriculture, packaging and infrastructure.
• Middle East & US Gulf Coast: Advantage of low-cost gas → expansion of ethylene and polyolefins production.

• Investment in Process automation, emissions monitoring and supply chain optimization.
• Target to be carbon neutral by 2050, with milestones by 2030 (e.g. -30% CO₂ emissions).

➡️ Today, LyondellBasell is not just a plastics producer - it is a company that is ambitiously building its position in circular chemistry. If it succeeds in making this transformation, it could go from a classic dividend value stock to a growth-defensive ESG leader.

SWOT analysis of LyondellBasell

Strengths

• High and stable free cash flow, ability to fund dividend even in a cyclical downturn
• Dividend yield over 9%, with a history of payout and growth since 2011
• Conservative leverage (net debt/EBITDA < 2x), strong liquidity position
• Leading position in the global polyolefins market
• Effective management and capital discipline, sale of low-margin assets (Houston refinery)
• Strategic investments in recycling and ESG solutions, proprietary MoReTec technology

Weaknesses

• Dependence on cyclical demand and commodity prices, especially in the core business
• High payout ratio on net profit (>100%), which may increase pressure on dividend sustainability
• Low revenue growth in traditional segments, slow change in product mix
• Perception as "old industry", discouraging ESG capital and retail investors

Opportunities

• Growth in advanced recycling - Legislation and demand push for greener solutions
• Expansion into specialty chemicals with higher margins and lower cyclicality
• Development in Asia and emerging marketswhere plastics consumption and infrastructure are growing
• Re-rating sharesif the market appreciates the new strategic direction and ESG transformation

Threats

• Recession and weaker industrial demand → pressure on margins and FCF
• Dividend cut riskif the cycle remains subdued for a longer period of time
• Increasing regulation and ESG reporting, potential increase in costs
• Strong global competitionincluding lower cost producers in Asia

SWOT analysis shows that LyondellBasell is now a mix of a traditional cash flow machine and a promising transformation story. This makes it all the more important to understand the investment in scenarios - and it is these that we will build on with the final section.

Conclusion.

LyondellBasell is a textbook example of a company that the average investor could easily classify as a "boring" value stock. But the reality is much more interesting. Yes, the stock currently offers a yield of over 9 % and trades at EV/EBITDA below 10xmaking it one of the cheapest companies in its sector. But that's not all.

Under new management, the company has actively shedding cyclical drag, investing in recycling and circular chemistry and slowly reshaping its portfolio towards higher added value and sustainability. This is not a "high-growth" story - but a a defensive player with a surprisingly dynamic outlook.

• Strong dividend and robust cash flow
• Attractive valuation that already takes into account negative scenarios
• Management willing to reshape the business - even at the cost of short-term pain

• Dividend sustainability at lower EPS
• Success in specialty chemicals and ESG transformation
• Market response to change in nature of the business - re-rating can take time

Investment considerations

For Investor seeking high yield, stability and exposure to the physical industrial fundamentals of the economy, LyondellBasell may be the an exceptional opportunity. Moreover, with a more tempered view of volatility and a willingness to hold the stock through the cycle, one can access an attractive transition story - from a cyclical commodity titan towards an ESG-oriented chemical platform.

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