Bayer's Dividend Faces a Crucial Crossroads: Can It Survive the Turnaround Struggles?

Investors in Bayer AG (BAYRY) are confronting a stark reality: the company’s dividend, already slashed to a skeletal €0.11 per share in 2024, now faces heightened risks of further cuts as its turnaround strategy collides with persistent financial and operational headwinds. With a payout ratio hovering near 90%, weak free cash flow, and a Crop Science division in turmoil, Bayer’s ability to sustain even minimal shareholder returns hinges on execution of a multiyear restructuring plan—and a favorable resolution to its litigation woes.

The Dividend’s Fragile Foundation

Bayer’s dividend has been on a dramatic downward trajectory since 2023, when it slashed payouts by over 95% to prioritize debt reduction. Despite reaffirming the €0.11 per share dividend for 2025, the math behind this decision is precarious. In 2024, the payout ratio—the percentage of earnings paid out as dividends—reached 116%, meaning the company paid more in dividends than it earned in core profits. Even under 2025 projections, the ratio remains elevated at 89%, relying on core earnings of €4.50–€5.00 per share to cover the dividend.

This strain is exacerbated by declining free cash flow, which dropped to €1.48 billion in 2023 and is projected to halve to €1.5–€2.5 billion in 2025. With net debt still at €32.6 billion, Bayer’s priority remains deleveraging, not shareholder returns. CEO Bill Anderson has framed 2025 as a “pivotal year” of “difficult” performance, signaling no room for dividend generosity.

The Perfect Storm in Crop Science

Bayer’s troubles are most acute in its Crop Science division, which saw 14% EBITDA declines in 2024 amid price wars and weaker seed sales. While the division’s five-year turnaround plan aims to boost EBITDA margins to the mid-20s% by 2029, near-term pain is inevitable.

The division’s flagship product, herbicide glyphosate (Roundup), remains entangled in U.S. litigation, with potential liabilities unresolved until 2026. Even without litigation costs, Crop Science faces competitive pricing pressures and regulatory hurdles, such as the EU’s pesticide restrictions. These challenges could further squeeze margins, undermining cash flow critical to dividend sustainability.

Pharmaceuticals: A Bright Spot, But Not a Panacea

Bayer’s Pharmaceuticals division offers hope. Drugs like Nubeqa™ (prostate cancer) and Kerendia™ (chronic kidney disease) grew sales by 83% and 74% in 2024, respectively, propelling divisional sales to €18.1 billion. New launches like Beyonttra™ (heart disease) in 2025 could add momentum.

However, these gains are offset by patent expirations (e.g., Xarelto™) and rising R&D costs for pipeline drugs. Margins are also under pressure: Pharmaceuticals’ EBITDA fell 9% in 2024 due to currency effects and product mix shifts. Until 2027–2028, when margins are expected to expand, the division alone cannot offset Crop Science’s struggles.

Debt Reduction vs. Dividend Growth: A Zero-Sum Game

Bayer’s debt-to-EBITDA ratio, while improving, remains elevated at 2.8x—well above the industry average. Management has committed to reducing net debt to €31–€32 billion by year-end 2025. To achieve this, free cash flow must be directed toward debt, not dividends.

Analysts estimate that every €1 billion reduction in debt requires diverting funds from shareholder returns. With litigation settlements potentially costing billions, any misstep could force Bayer to cut the dividend further.

The Bottom Line: A Dividend on Life Support

Bayer’s dividend hangs in the balance, supported only by a thread of cost-cutting and hopes for a Crop Science turnaround. Key risks include:
- Litigation uncertainty: U.S. glyphosate cases could drain cash beyond projections.
- Crop Science’s slow recovery: A mid-2020s margin improvement timeline leaves near-term cash flow vulnerable.
- Payout ratio risks: At 89%, the dividend consumes nearly all projected core earnings, leaving no margin for error.

Conclusion: Investors should brace for a dividend cut unless Bayer’s Crop Science turnaround accelerates and litigation risks subside. With free cash flow projections halved and payout ratios near unsustainable levels, the €0.11 dividend is a stopgap measure, not a sustainable promise. Until Bayer proves it can stabilize margins, deleverage meaningfully, and resolve legal issues, the dividend remains a high-risk bet. For now, caution is warranted—this seesaw of debt and dividends is tilting precariously toward collapse.