On Monday, JPMorgan upgraded its rating for LyondellBasell Industries (NYSE:LYB), shifting from Neutral to Overweight and raising the price target to $100 from $95. The upgrade came after a comparative analysis of dividend yields and market performance between LyondellBasell and its peer, Dow.
LyondellBasell's shares experienced a decline on Friday due to a weaker-than-expected earnings report for the fourth quarter of 2023. Despite this, JPMorgan predicts a potential dividend increase for the company in May, referencing historical increases of 5% in both May 2023 and May 2022.
The company has a policy of returning 70% of its free cash flow to shareholders, but in 2023, it distributed only 50%. LyondellBasell has emphasized its commitment to long-term shareholder returns and highlighted its current cash balance of $3.4 billion, which is approximately twice its normal cash balance.
LyondellBasell and Dow are both seen as profitable commodity chemical companies with strong balance sheets operating in similar markets. Over the past year, LyondellBasell has outperformed Dow by 7%, with a 5% dividend increase, while Dow’s dividend remained unchanged. Over a two-year period, LyondellBasell's performance exceeded Dow's by 10%, corresponding with its consistent dividend growth.
JPMorgan suggests that stocks like LyondellBasell, with high and relatively secure dividends, are likely to perform well in a declining interest rate environment. The firm also notes that petrochemical companies are poised to benefit if the global economy shows signs of improvement.
InvestingPro Insights
Following JPMorgan's upgrade of LyondellBasell Industries (NYSE:LYB), a deeper dive into the company's financials through InvestingPro metrics reveals some compelling figures. The company's market capitalization stands at a robust $30.12 billion, and with a P/E ratio of 14.34, it presents an interesting valuation picture for investors. Notably, the adjusted P/E ratio for the last twelve months as of Q4 2023 is even more attractive at 11.79, suggesting a potentially undervalued stock.
InvestingPro Tips highlight LyondellBasell's high shareholder yield and a strong free cash flow yield, which aligns with the company's policy of returning a significant portion of its free cash flow to shareholders. In fact, the company has been consistent in this regard, maintaining dividend payments for 13 consecutive years. Moreover, the dividend yield as of the latest data stands at a generous 5.38%, reinforcing the company's commitment to shareholder returns.
For investors seeking stability, LyondellBasell's stock generally trades with low price volatility, which might be a comforting factor in uncertain market conditions. Additionally, the company is a prominent player in the Chemicals industry, which could provide a strategic advantage moving forward.
For those interested in more in-depth analysis, InvestingPro offers additional tips on LyondellBasell. A special New Year sale is currently offering up to 50% off on a subscription, with the opportunity to use coupon code SFY24 for an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 for an additional 10% off a 1-year InvestingPro+ subscription. There are 9 additional InvestingPro Tips available for LyondellBasell, which can be accessed to further inform investment decisions.
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