LyondellBasell: The Safest Dividend Is One That's Just Been Raised (NYSE:LYB)
Investing in dividends can be an effective method for ordinary retail investors to accumulate wealth by gradually constructing their income sources. It's crucial to keep in mind that creating a well-balanced investment portfolio takes time and should be approached methodically. Consequently, it's important to distribute your investments and meticulously select companies that have a history of consistently increasing their payouts.
It seems like LyondellBasell (NYSE:LYB) is proving to be a good investment choice. I talked about it in December and mentioned it was available at a discount with a 6% yield. It looks like the rest of the market agrees because LYB has given investors a 12% total return, which is slightly better than the 11.9% return of the S&P 500 (SPY) during its AI-led rally.
In recent times, LYB provided investors with a significant increase in dividends. In this piece of writing, I would like to discuss why it continues to be an excellent option for both income and growth. So, let's begin.
LyondellBasell is a worldwide chemical corporation that operates across various business segments, such as olefins and polyolefins, intermediates and derivatives, and oxyfuels and refining. I believe that it is a "GDP" company because the products it produces have a broad range of uses that affect consumers and industries, and its performance can reflect the state of the global economy. Within the past 12 months, LYB has earned a total revenue of $47.5 billion.
Like many large industrial companies, LYB benefits from having a large scale, which makes it difficult for new competitors without significant assets to enter the market. This is proven by LYB's exceptional 12% return on investment in the past year, and its impressive 89% cash conversion rate, determined by dividing net operating cash flow by EBITDA (excluding LCM and impairment costs).
LYB's strong oxyfuels and refining margins were sustained by an unchanging need for fuels. Improvement in global demand and decreased input costs were the major contributors to LYB's promising margins for olefins and polyolefins. This is significant for LYB as these products are their main source of income.
LYB has been consistently performing well and has managed to give back a substantial amount of $3.5 billion to its shareholders over the past year. This includes their dividend payouts, where LYB currently offers a decent 5.5% yield at a ratio of 43.5%. Furthermore, LYB has increased its dividend payouts by 5%, maintaining a consistent track record of increasing its payouts for the past 9 years.
The payment to shareholders is supported by a stable balance sheet that has earned a BBB rating. The company has a large amount of money, worth $1.8 billion, on hand and has a low ratio of net debt to EBITDA, which is just 1.7 times. This ratio is considered safe by most ratings agencies since it is well below the safe level of 3.0 times.
In the future, LYB has various options to increase the value of its portfolio. For example, it can use its large size and worldwide locations to obtain reused and sustainable materials to expand its low carbon and circular products division. Additionally, LYB opened the biggest propylene oxide factory in the world, which the management emphasized the advantages of in a recent conference call.
Our factory has now become twice as large as our original plans, resulting in enhanced productivity and increased product efficiency. Moreover, we have implemented numerous design enhancements that significantly reduce energy consumption and thus, lower costs while minimizing emissions.
Basically, we think our PO/TBA method produces propylene oxide that's better for the environment than other common methods. Plus, our way of making it is the cheapest in the world. When we started using the new factory, we were able to make products that met our standards at a speed of 70% or more within a month.
Finally, LYB continues to be a smart investment opportunity at its current price of $89 considering its forward price-to-earnings ratio of 9.2. Experts predict an annual earnings-per-share growth rate of 10% to 13% within the 2024 - 2025 period and they've set an average price goal of $101, meaning a possible overall return of 19% including dividends in the next year.
Over time, LyondellBasell has consistently provided dividends and this trend continued with its latest dividend increase. As a result of its formidable balance sheet and efficient operating practices, it is a highly valued resource and a solid indicator of the global economy's health. Furthermore, the company is making significant strides in enhancing its core operations and promoting circular solutions. Given its rational financial assessment, LyondellBasell proves to be a smart choice for both investors interested in earning profits and those looking for long-term growth.
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