Valhi’s Dividend Stability and Undervalued Valuation Offer a Compelling Investment Thesis

Investors seeking steady dividends and undervalued opportunities in the basic materials sector should take note of Valhi, Inc. (NYSE: VHI). With a dividend payout ratio of just 7.8%—far below the sector average of 43.7%—Valhi’s financial discipline and strong cash flow generation position it as a rare blend of dividend sustainability and valuation upside.

A Dividend Machine with Room to Grow

Valhi has paid uninterrupted dividends for 31 consecutive years, most recently at a quarterly rate of $0.08 per share. While the dividend itself has remained unchanged for the past year, its yield has surged to 2.15% as the stock price dropped by 20% over the past 12 months. This creates a compelling entry point for income-focused investors.

Crucially, Valhi’s ultra-low payout ratio (7.8%) suggests it retains 92% of earnings for reinvestment or future distributions. This conservative approach contrasts sharply with peers like CIX (219.2% payout ratio) and NL (60.8%), which risk overextending their dividends. Valhi’s strategy prioritizes long-term stability over aggressive payouts, a key advantage in volatile markets.

Strong Financials Fuel Confidence

Valhi’s first-quarter 2025 results underscore its operational resilience. Net income surged to $16.9 million, up from $7.8 million in Q1 2024, driven by its Chemicals Segment, which reported a 76% jump in operating income to $41.2 million. This segment’s 18% increase in TiO₂ production volumes and 93% plant utilization rates highlight operational excellence.

While currency fluctuations (notably the euro) and lower TiO₂ prices pressured results, the recent acquisition of Louisiana Pigment Company (LPC) in July 2024 has strengthened control over key assets. Even with higher debt from this move, Valhi’s debt-to-equity ratio of 0.45 remains conservative, and its $4.6 billion in cash equivalents (as of March 2025) provides a safety net.

Valuation: A Hidden Gem in a Discounted Market

Valhi’s stock trades at a trailing P/E of 3.83, a 90% discount to its 5-year average of 22.3. The EV/EBITDA of 2.85 is equally compelling, suggesting the market is undervaluing its earnings power. With a market cap of $445 million—down 5% from 2024 but far below its 52-week high of $41.75—the stock appears poised for a rebound.

This disconnect between fundamentals and valuation creates a rare opportunity. The company’s low payout ratio leaves ample room to boost dividends if management chooses, while its cash-rich balance sheet supports share buybacks or strategic acquisitions.

Risks and Why They’re Manageable

• Currency Fluctuations: The euro’s impact on sales and margins is a near-term headwind, but Valhi’s global diversification and pricing strategies should mitigate long-term risks.
• Debt Levels: While debt rose post-LPC acquisition, the 0.45 debt-to-equity ratio remains sustainable, and interest coverage ratios are healthy.
• TiO₂ Market Volatility: Lower selling prices in Q1 2025 are a concern, but Valhi’s cost efficiencies (per-metric-ton costs down 8%) and 93% plant utilization provide a buffer.

Why Act Now?

Valhi’s dividend yield of 2.15% offers immediate income, while its valuation multiples signal significant upside potential. The stock’s 20% decline over the past year appears overdone given its improving earnings and fortress balance sheet.

For long-term investors, Valhi’s blend of dividend reliability, sector-leading cash flow, and undervalued metrics makes it a standout pick. The acquisition of LPC and operational improvements in chemicals suggest earnings momentum could accelerate further.

Final Call: Buy Valhi Before the Market Catches On

Valhi’s stock is a rare find in today’s market: a dividend stalwart trading at a valuation discount that doesn’t reflect its financial strength. With a payout ratio that leaves room to grow, improving segment performance, and a fortress balance sheet, this is a buy-and-hold opportunity with both income and capital appreciation potential.

Investors who act now may benefit as the market recognizes Valhi’s true worth—and before the dividend yield compresses as the stock price recovers.