2025 was a year to forget for chemical giants Dow (DOW +9.51%) and LyondellBasell Industries (LYB +9.65%). Both stocks plummeted to multiyear lows. Coincidentally, they both fell by exactly 41.7%.
2026 is already looking a lot better for materials sector investors. Materials and energy are the best-performing stock market sectors in 2026. And Dow and LyondellBasell are both up over 15% year to date at the time of this writing.
On top of that, Dow yields 5%, and LyondellBasell yields a staggering 10.9%. Here's why both chemical giants are excellent turnaround stocks to buy for passive income in 2026.
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The downturn drags on with more pain ahead
Dow and LyondellBasell produce commodity chemicals used in packaging, industrial applications, consumer goods, additives, sealants, fluids, and lubricants. Key products such as polyethylene, polypropylene, and polyurethane are the building blocks of global manufacturing.
The challenge is that supply has been outpacing demand due to intense competition from countries like China, as well as overcapacity and slowdowns in key end markets like consumer goods, automotive, and construction. As you can see in the following chart, these headwinds have taken a toll on Dow and LyondellBasell's earnings and margins, which are at multiyear lows.
DOW data by YCharts. EPS = earnings per share. TTM = trailing 12 months.
On its fourth-quarter 2025 earnings call from Jan. 29, Dow provided some useful insights into what to expect in the year ahead. Although the downturn is likely to drag on, Dow did cite a variety of positive factors, such as lower interest rates improving the housing market and higher margins in packaging and specialty plastics, but a weak year for U.S. auto sales.
For what it can control, Dow is slashing costs -- expecting to deliver the remaining $500 million in cost savings by the end of the year, which is the second half of its $1 billion program. On its January earnings call, Dow also announced the reduction of 4,500 roles globally (roughly one-eighth of its workforce), which will lead to $600 million to $800 million in one-time severance costs. In addition to cutting costs, Dow has improved its balance sheet through asset sales and pullbacks in capital-intensive projects, and it cut its dividend in half last July.
LyondellBasell is in a similar boat, with $600 million in expected cash improvements in 2025 and $1.1 billion in total by the end of this year. But unlike Dow, LyondellBasell has not cut its dividend -- hence the higher yield. However, like Dow, it has sold assets, shut down plants, and paused or canceled projects to shore up cash.
I could see LyondellBasell following in Dow's footsteps and slashing its dividend in half this year. Even if it did, it would still yield north of 5% and remain in high-yield territory while preserving some much-needed cash in the process.
NYSE: DOW
Key Data Points
Two value stocks for risk-tolerant income investors
When cyclical stocks are in downturns, especially of this magnitude, it's impossible to value them using traditional valuation metrics like price-to-sales, price-to-earnings, or price-to-free-cash-flow ratios. However, analyst consensus estimates have Dow's earnings remaining negative in 2026 and turning slightly positive in 2027, with LyondellBasell building on a positive year in 2025, with even better profitability in 2027.
The glass-half-full outlook for both companies is that their cost cuts, efficiency improvements, and restructuring will coincide with an eventual industrywide recovery. In the meantime, both stocks have high yields to boost passive income. As earnings improve, both stocks could look dirt cheap given how beaten down they are. However, some investors may still want to pass on Dow and LyondellBasell because they aren't supporting their dividends with free cash flow, instead leaning on their already strained balance sheets or relying on asset sales.
All told, Dow and LyondellBasell are so out of favor and beaten down that some deep-value investors may want to take a closer look at them, but risk-averse investors may prefer to power their portfolios with more straightforward blue chip stocks like Procter & Gamble and Coca-Cola.
