Huntsman Corporation Faces Dividend Scrutiny Amid Financial Weakness and S&P Downgrade

Huntsman Corporation's Dividend Sustainability Questioned Amid Financial Pressures

Huntsman Corporation (NYSE:HUN), a global manufacturer of specialty chemicals, is facing increasing investor scrutiny regarding the sustainability of its high 12% dividend yield. The company's financial health has come under pressure, marked by weak operational performance, rising debt levels, and a recent downgrade of its credit rating by S&P Global Ratings. This confluence of factors suggests a significant likelihood of a dividend cut, posing considerable risk for current and prospective shareholders.

S&P Downgrade Highlights Weakened Financial Position

S&P Global Ratings downgraded Huntsman's issuer credit rating to 'BB+' from 'BBB-' in April 2025, moving the company into below investment-grade territory. This revision primarily reflects a sustained drop in EBITDA margins, which are expected to remain weak. The downgrade followed a reassessment of Huntsman's business risk profile, noting that adjusted EBITDA for 2023-2024 was less than half of its 2021-2022 peak, with margins falling below 10%. Key contributing factors include persistent inflation, subdued demand from the housing and construction markets (which represent approximately half of the company's 2024 revenues), slower demand in the automotive sector, customer destocking, and depressed profitability in certain products like maleic anhydride. The competitive operating environment, particularly in regions such as China, also played a role.

In the second quarter of 2025 (Q2 2025), Huntsman reported a net loss of $158 million, a substantial decline from a $22 million net income in Q2 2024. Adjusted EBITDA for the quarter fell to $74 million from $131 million in the prior-year period. The company's net debt increased to $1.636 billion in Q2 2025 from $1.585 billion in Q2 2024, pushing its net debt leverage ratio to 4.7x from 4.0x. While operating cash flow from continuing operations increased to $92 million in Q2 2025, and free cash flow from continuing operations rose to $55 million, the overarching trend points to a challenged financial structure. Importantly, the company's dividend payments, totaling $87 million in the first half of 2025, were primarily financed by increasing debt rather than generated free cash flow, which was negative during this period (operating cash flow of $17 million minus capital expenditures of $73 million).

Market Reaction and Investor Implications

The S&P downgrade signals reduced investor confidence and will likely increase Huntsman's borrowing costs, potentially hindering future growth and financial stability. The market sentiment surrounding HUN is largely bearish, with high volatility expected. The fact that the dividend is not covered by current earnings or free cash flow, necessitating debt financing, presents a significant red flag for income-focused investors. Such a situation is inherently unsustainable in the long term and typically precedes a dividend reduction.

Broader Context and Sector Headwinds

Huntsman's struggles are emblematic of broader challenges within the chemicals sector. Following years of post-pandemic instability, 2024-2025 has seen the sector grapple with overcapacity, aggressive exports from China, persistent inflation, high interest rates, and weak demand across key end-markets like construction and manufacturing. These factors have led to declining revenues across the industry, with average debt levels rising back to pandemic-era highs.

Compared to larger peers, Huntsman operates at a smaller scale, with a market value of approximately $1.5 billion and annual revenues around $6 billion. For context, LyondellBasell (NYSE:LYB), a larger competitor, boasts a market value of about $15 billion and generated some $40 billion in annual revenues in 2024. While Huntsman trades at a lower price-to-sales valuation (0.25x vs. LYB's 0.48x), reflecting its more specialized focus, this valuation discount also underscores the inherent risks. The company's situation reflects a broader trend where industrial sectors, particularly chemicals, are feeling the impact of macroeconomic headwinds and serve as an indicator of the wider economic health.

Analyst Perspectives and Future Outlook

Bank of America recently downgraded Huntsman to an "underperform" rating, specifically flagging potential dividend risks. The bank cited a challenging U.S. chemicals landscape characterized by oversupply, soft demand, and continued destocking pressures. Similarly, Finimize noted that as leverage increases and free cash flow tightens, the possibility of a dividend cut is rising. Despite these warnings and negative earnings, Huntsman's board maintained its quarterly US$0.25 payout for Q3 2025, a decision that intensifies scrutiny on the company's ability to balance shareholder returns with financial discipline.

Looking ahead, Huntsman is implementing aggressive cost-cutting initiatives, targeting $100 million in run-rate benefits by the end of 2026. This includes the closure of its European Maleic Anhydride facility and a nearly 10% reduction in its global workforce. The company aims to reposition itself towards higher-margin specialty chemicals. S&P Global Ratings expects Huntsman's operating performance to remain weak throughout 2025 but anticipates a slow improvement starting in 2026, driven by these cost-reduction efforts and a gradual recovery in housing markets. Management is also expected to maintain supportive financial policies, potentially scaling back capital expenditures and limiting share repurchases or acquisitions if earnings continue to underperform, to preserve cash flow.