We recently put together a list of 10 Dividend Trap Stocks to Avoid in 2025. Here, we take a detailed look at Dow Inc. (NYSE:DOW) and its ranking among the top 10 dividend trap stocks investors should avoid in 2025.

During uncertain times, dividend stocks are often seen as a safe bet for investors to cushion the impact. In 2025, however, the cushion may be carrying more risk than reward. Shifting market conditions are revealing signs of trouble underneath the stocks, which were initially appreciated as reliable dividend payers. No, we are not talking just about volatility or short-term noise; we are talking about companies that would seem irresistible with their attractive yield but carry risks capable of eroding your capital.

READ ALSO: 11 Best Russell 2000 Stocks to Buy According to Wall Street Analysts.

A thick fog of uncertainty rests over the investing climate in 2025. Earnings expectations for the large caps have been slashed at an alarming rate in the past few weeks alone. CNBC noted that some of the analysts, who initially predicted a 5% earnings growth for the market indices, have revised their estimation to a flat or even negative outcome by next month. Various companies have pulled their guidance together, reflecting not just caution but an absence of visibility to make the forecast. And by extension, the dividend-paying stocks have become trickier than before.

What’s the cause? The U.S. tariffs. President Trump, though, announced a 90-day tariff-pause on dozens of countries, slapped a whopping 145% tariff on Chinese goods into the U.S. China retaliated with a 125% tariff on U.S. imports, effectively sealing off a $650 billion trading corridor, which was considered a lifeline of multiple industries both in the U.S. and China. According to Reuters, this trade war between two of the largest economies in the world has sent ripples across the already shaken global asset markets. Companies, including the consistent dividend payers, are now facing cost shocks and a sharp decline in their profit margin, which are bound to affect the income of the investors.

Shifts in investor sentiment are also becoming part of these challenges. Along with institutional investors, retail investors are also adopting a wait-and-see approach. Mergers and acquisitions processes are slowing down, capital expenditures are being slashed, and supply chains are being restructured to handle the current market issues rather than the long-term challenges. Recent earnings calls are showing the CFOs prioritizing liquidity and short-term cost optimization. These actions are highly likely to affect the dividends, as it is one of the easiest budget line items to slash.

The situation underscores the importance of not blindly chasing after yields. High dividend yields could potentially be masking a weakness, including earnings fall, escalating debt, or unsustainable payout ratios. In this regard, attractive yields are becoming a trap that can lure investors, only to collapse under pressure when market conditions worsen. With uncertainty outweighing opportunity in 2025, it is immensely necessary to separate solid dividend plays from ticking time bombs.

Our Methodology

When putting together our list of top 10 dividend trap stocks to avoid, we have followed a few criteria. Primarily, we have set the minimum market cap at $2 billion since investors are less likely to fall for stocks with a smaller cap. The stocks that are on a declining trend have been considered for this article. Such low performance reflects issues within the business operations that have made an impact on the value of the stocks. Also, we have included only those stocks with a dividend yield of 5% or more to ensure that these stocks are attractive enough to lure investors. All our picks have a payout ratio of 100% or more, suggesting an earnings issue within the company, which the investors need to be aware of.

All the data used in the article were taken from financial databases and analyst reports, with all information updated as of April 11, 2025. Our picks are ranked based on their dividend yield.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Dow Inc. (NYSE:DOW)

Performance: -51.37%

Dividend Yield: 9.93%

Payout Ratio: 178.34%

Dow Inc. (NYSE:DOW), a Michigan-based company, is a global leader in materials science, producing plastics, industrial chemicals, and specialty products for end markets such as packaging, construction, and automotive. Innovation in polyethylene and polyurethane and circular economy initiatives amounts to the company’s competitive edge. Additionally, Dow Inc. (NYSE:DOW) uses integrated production and R&D investment to address climate challenges and demand shifts, thereby differing from its competitors in the market.

The company’s stocks saw a huge decline of 51.37% over the last 1 year, indicating a heavy fall in performance. The pricing pressures prevailing in the market caused a 2% year-over-year net sales decrease. As per the Q4 results, the EBITDA remained almost as flat as the previous year. The global macroeconomic conditions are weak and stand against the company, thus causing it to announce a strategic review of select European assets. Upon realizing that the market dynamics are not in its favor, Dow Inc. (NYSE:DOW) postponed the maintenance turnaround at one of its ethylene crackers in Europe. The decision could potentially idle the asset, resulting in lifespan exhaustion without generating any returns.

Even with a high dividend yield of 9.93%, Dow Inc. (NYSE:DOW) might be a risky dividend stock investment because of a dangerous 178.34% payout ratio, which signals unsound fundamentals.

Overall, DOW ranks 2nd on our list of top dividend trap stocks investors should avoid in 2025. While we acknowledge the potential of DOW, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than DOW but trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.