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LyondellBasell is Fired Up

Few investors are familiar with LyondellBasell Industries NV (LYB) – one of the largest plastic, chemical and refining companies in the world.

As a result, many failed to cash in on the company’s recent surge, which saw LYB stock leap 84% over the past year.

But don’t worry if you missed out, because the Dutch chemical company has plenty more room to run.

Indeed, LyondellBasell is taking advantage of one of the energy market’s least talked about trends – and it’s not going to stop any time soon.

So what exactly is it that has the company so fired up?

A major shift in natural gas prices that’s lowered input costs.

You see, while Lyondell does produce gasoline, much of its sales are generated from other chemicals, like ethylene and propylene. These are used in a wide variety of day-to-day products, particularly plastics.

The raw materials used to make these chemicals are “hard liquids” (mainly resources like crude oil-based naphtha) and natural gas liquids (NGLs).

Up until a few years ago, the cheaper materials for producers like LyondellBasell were the hard liquids. However, with the U.S. natural gas boom driving prices to historic lows, NGLs are suddenly less expensive.

Now, NGLs like ethane, propane and butane are cheaper, giving them a sizeable cost advantage over hard liquids. As a result, LYB’s input costs have declined significantly.

And the added savings are being funneled back to shareholders.

LyondellBasell has increased its quarterly dividend by 25% and approved the repurchase of up to 10% of its stock over the next 12 months in an effort to increase shareholder return.

In fact, LyondellBasell just announced a $0.50-per-share interim dividend payable in July in addition to the $2.00 per share investors already receive.

And even though the company’s stock is up 18% year-to-date, it’s still only valued at 12.28 times earnings. That compares to an industry average of 15.9.  Its 3% yield tops the industry standard of 2.3%, as well.

Bottom line: LyondellBasell is making the most of an evolving trend in the energy arena. It’s increasing efficiency and returning value to shareholders, and the stock has a ton of momentum.

It’s definitely a candidate for any investor looking to increase their exposure to the specialty chemicals business.

And “the chase” continues,

Matt Senseney