“If it looks too good to be true, it probably is.”

That adage has haunted shareholders (and watchers) of Dow Inc. (DOW 1.67%) for months and months now. This, as the company’s previous $2.80 annual dividend saw the yield hovering around 10% since early April, an eye-grabbing number that looked enticing but was more than offset by a steep, yearlong slide in the stock. Shares had already lost more than half their value before management finally moved on July 24, announcing a 50% dividend reduction during their second-quarter earnings call.

According to Dow Chairman and CEO Jim Fitterling on the company’s second quarter earnings call, the cut was necessary to preserve cash and give the 128-year-old chemical giant much-needed flexibility to navigate a tough environment. Which is all well and good, but it should also serve as a cautionary flag — especially for income-oriented investors. In short, Dow might not be a buy yet. The fundamentals are still too weak, and the path to recovery is far from certain.

Why the cut doesn’t equal an “all clear”

I’ll be the first to admit that management was prudent to lower the quarterly dividend to $0.35 per share from the $0.70 level it had held since June of 2019. It’s a payout that’s better aligned with free cash flow, reduces strain on the balance sheet and provides immediate optionality and breathing room.

That said, prudent doesn’t always mean attractive. While Dow’s current dividend yield today (roughly 5.8% vs. 1.2% for the broader S&P 500) looks appealing on the surface, the exact same set of headwinds are still blowing that forced the reduction in the first place.

It is my belief that until there’s evidence of demand recovery, pricing improvement, earnings stability, and more, conservative investors should resist the urge to chase the yield. The first test comes this fall with third-quarter results slated to be released October 23. That will be just one in a series of checkpoints needed to prove whether Dow’s dividend-fueled turnaround is real or fleeting.

What still clouds the outlook

Dow’s own commentary in July underscored how much uncertainty remains:

• Geopolitical headwinds and tariffs continue to weigh on demand and pricing.
• Weak global demand, saw sales down 7% year over year companywide and across all business units.
• Margin pressure, as pricing weakness outpaces cost savings.
• Execution challenges, reflected in management’s own forecasting difficulties and its ‘lower-for-longer’ earnings guidance.

None of these variables seem to have improved since the summer. The risks are still present, and the visibility into recovery remains limited.

A trader’s bounce, not a dividend play

The stock’s 20% rebound over the past two weeks illustrates the difference between a tactical trade and a long-term income investment. To be sure, short-term traders capitalized on oversold conditions and timing the bounce mattered more than dividend durability. The fact remains, even with their recent rally, shares of Dow are still about $5–or 20%– below the $30 level they were trading at prior to the seismic dividend slash news.

Income investors, however, play an entirely different game that is much more linked to price stability and payment predictability. Some analysts even argued that Dow should have suspended the dividend entirely to reset expectations and conserve more cash. If nothing else, that perspective underscores the uncertainty that still shrouds the company, the industry and the sustainability of the smaller payout.

Too soon to bet on a cycle

Dow is a resilient company with scale, a diversified global footprint, and decades of experience managing through downturns and challenges. But calling a cyclical bottom in chemicals, or clarity in the ongoing tariff turmoil, is far from straightforward. Demand recovery depends on global growth, trade policy, and pricing power–all of which are largely outside the company’s control.

Whether the next upturn arrives in six months or two years, is anybody’s guess. For dividend investors, that does not strike me as a foundation sturdy enough to justify stepping in today.

Bottom line

Dow’s dividend cut was the right move, but in my opinion it doesn’t resolve the bigger problem: weak fundamentals with no clear timeline for improvement. The stock’s recent rally may entice traders, but for true income-focused portfolios, the risks still outweigh the potential reward.

That’s why I think the prudent move here is patience. The upcoming October 23rd Q3 earnings report will be an important first checkpoint, but it will take multiple milestones and quarters of progress before Dow can credibly be considered a stable income play again.

For now, Dow is one dividend stock I’d avoid.