Worst Performing Dividend Aristocrats 2021

3 Worst Performing Dividend Aristocrat Stocks in 2021

The year 2021 will be another good one for the Dividend Aristocrats. The list of roughly 65 stocks will return approximately 25% this year, barring a downturn in the last week of 2021. This year’s positive return will make it three up years in a row. In addition, the list had positive returns in nine of the past ten years. The one down year was 2018 at only (-2.73%). This track record has resulted in annualized returns of 15.15% in the past decade. Not bad in absolute and relative terms. However, several stocks perform poorly each year due to macroeconomic or company-specific challenges in any group of stocks. This year is no exception. This article discusses the three worst-performing Dividend Aristocrat stocks to date in 2021.


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Market Overview

Stocks continued their momentum from 2020 with another good year. However, investor fears of rising interest rates in response to inflation and fear of the Omicron variant have tempered gains over the past few weeks. Only recently has the market turned up again. Inflation is still the highest in four decades, but unlike in 1982, unemployment is nearing a record low, the stock market is in a bull market, wages are trending higher, the US is not in a recession, and the US economy is on track for the fastest growth since 1984. The US Federal Reserve has pivoted and is more hawkish on inflation. Investors can expect faster tapering of bond purchases and possible rate increases in 2022. Furthermore, the news from South Africa about the surge and decline of Omicron is positive.

The tech-heavy NASDAQ-100 is up another ~17.0% (as of December 23, 2021). This performance is not as good as last year, when the NASDAQ-100 was up about 48.1% in late December and had a great year. However, this year’s return is still a good one.

The Dow Jones Industrial Average (DJIA) gained ~17.5% YTD, more than twice, and almost tripled its performance last year at this point. Mega-cap tech stocks are driving the Dow’s performance. The best performing stock in the Dow 30 is Home Depot (HD), followed closely by Microsoft (MSFT). Microsoft is a very safe dividend stock and arguably one of the best dividend growth stocks to own with its ‘AAA’ balance sheet.

The S&P 500 Index is the top-performing major index and about +27.6% YTD. This performance is better than 2020 in late December when the S&P 500 Index gained ~17.5%. The S&P 500 is usually a core part of their lazy retirement portfolio for many retirees. Mega-cap tech stocks drive total returns in the S&P 500 stocks.

The Dividend Aristocrats 2020 had a decent year with a +8.68% return after a strong 2019 when the group returned +27.97% by the end of the year. This year the Dividend Aristocrats are up ~24.0%, as seen in the chart from in StockRover*, doing better than the NASDAQ-100, DJIA, and the Russell 2000 (+13.9%) Indices. As a result, the Dividend Aristocrats 2021 performed exceptionally well and slightly below the S&P 500.

Dividend Aristocrats 2021 Performance
Source: StockRover*

Last Year’s Worst Performers

The three worst-performing Dividend Aristocrats in 2020 were Exxon Mobil (XOM), Federal Realty Trust (FRT), and Chevron (CVX). However, all three stocks have positive returns year-to-date (as of December 23, 2021). Federal Realty Trust is up +60.9%, making it one of the top three Dividend Aristocrats this year, Exxon Mobil is up +57.8%, and Chevron is up +46.2%.

The Dividend Aristocrats Dropped Three and Added Three

There were 65 Dividend Aristocrats at the end of 2020, and there are 65 Dividend Aristocrats today at the end of 2021. In January 2021, Carrier Global (CARR), Otis Worldwide (OTIS), and Raytheon Technologies (RTX) were removed from the list. However, International Business Machines (IBM), NextEra Energy (NEE), and West Pharmaceutical Services (WST) were added to the list.

3 Worst Performing Dividend Aristocrat Stocks in 2021

So, after considering these changes, the three worst-performing Dividend Aristocrat Stocks in 2021 were: VF Corporation (VFC) at (-16.6%), Clorox (CLX) at (-13.3%), and Medtronic (MDT) at (-11.6%) based on my watch list in StockRover*.

Dividend Aristocrats 2021 Returns
Source: StockRover*

VF is having its second poor year in a row. The branded apparel giant has been down (-24.6%) in the past two years due to the adverse effects of COVID-19. On the other hand, Clorox had the wind at its back for much of 2020 and 2021. However, rising vaccination rates and reopening of the economy have impacted the stock price since mid-2021. Medtronic’s stock price has been down slightly in the past two years. The company struggled as elective procedures were deferred, and operational missteps have not helped.

I summarize each stock’s challenges in 2021 and the positives as the basis for further research.

VF for Active and Outdoor Wear

VF is a branded, global apparel manufacturer. The company operates in three segments: outdoor, active, and work. VF’s big four brands are VANS, The North Face, Timberland, and Dickies. The company also owns Supreme, Smartwool, Icebreaker, Altra, Kipling, Napapijri, Eastpack, JanSport, and the Eagle Creek brands. VF sells its apparel through department stores, specialty stores, chain stores, and increasingly direct-to-customer (DTC). In the past several years, VF has reshaped its portfolio of brands by divesting smaller and non-core ones. The company also divested its jeans business into a separate company, Kontoor Brands (KTB).

VF’s strength is the big four brands that the company acquired and grew. They are popular with active and outdoor consumers. VANS, Timberland, and North Face make up the majority of sales. All four brands are growing despite some challenges in the wholesale market. VF is exposed to brick-and-mortar retailers seeing lower traffic and closing stores. However, VF is moving into DTC and e-commerce.

VF Big Four Brands
Source: VF Corporation Investor Relations

This brand strength, success at M&A, and organic growth make the company interesting for dividend growth investors. Additionally, VF has consecutively raised the dividend for 48 years. In addition, the dividend growth rate in the past decade is ~12.3%; it is ~7.7% in the past 5-years and approximately 3.9% in the past 3-years. The slowing growth rate is concerning, but this is due to the high payout ratio of about 72%.

The current dividend yield is around 2.88%. This dividend yield is greater than the 5-year average and the S&P 500’s average dividend yield at about 1.25%. This difference suggests that the stock is undervalued. However, the price-to-earnings (P/E) ratio is about 21.8, which is elevated compared to the long-term average this past decade of ~20X. Hence, investors may want to wait for a dip before buying.

Portfolio Insight - Dividend Yield History VFC
Source: Portfolio Insight*

Clorox is the Cleaning King

Clorox is one company that has benefitted from the pandemic due to ownership of the No. 1 bleach and wipes brand. It derives about 30% of its sales from cleaning and disinfecting products. Other cleaning brands include Liquid PLUMR, Pine-Sol, Ayudin, Formula 409, poett, and Clorox Pro. Hence, the COVID-19 pandemic provided a powerful tailwind for the top and bottom lines. However, sales are declining after strong in 2020 and H1 2021. In addition, supply chain disruptions and higher cost inputs are pressuring margins. The stock price has dropped as a result.

However, Clorox is more than just bleach and disinfectant. The company also owns other major brands such as Burt’s Bees, Brita, CALM, Kingsford, Glad, Rainbow Light, Hidden Valley Ranch, Freshstep, Neocell, RenewLife, and Scoop Away. The company states that 80% of the global product portfolio is No. 1 or No. 2 in their categories. In addition, Clorox has a dominant share in some markets such as bleach (~60%), charcoal (~54%), and trash bags (~30%).

Clorox Overview
Source: Clorox Investor Relations

Clorox is a good stock for dividend growth investors to own. The company consistently raises the dividend by about 7.5% CAGR. The dividend growth rate in the past decade is 7.53%, 7.52% in the trailing 5-years, and 9.78% in the past 3-years. Applying the Rule of 72 means that the dividend will double about every 10.2 years.

Portfolio Insight - Dividend Growth CLX
Source: Portfolio Insight*

In addition, the forward dividend yield is about 2.72% above the average for the past 5-years and that of the S&P 500. The reasonably conservative payout ratio of approximately 59% means more dividend increases in the future.

However, despite the downward trend in the stock price, Clorox is overvalued, trading at a forward P/E ratio of about 31.2. This valuation is higher than the long-term average of about 23X in the past decade. In addition, the stock price is near the 50-day and 200-day exponential moving average (EMA), as seen in a screenshot from  Stock Rover*.

Clorox Select Data
Source: Stock Rover*

Clorox is an excellent choice for most dividend growth investors. However, I like buying more shares when the dividend yield exceeds 3%, and the valuation is closer to the long-term average. Hence, Clorox is a pass for now.

Medtronic Experiencing Headwinds

Medtronic is a long-time Dividend Aristocrat with 44 consecutive years of dividend growth. However, the company’s stock price is performing poorly for three reasons. First, the COVID-19 pandemic caused a downturn in sales and earnings since elective procedures were often delayed. Although elective surgeries have resumed, COVID-19 still has an effect. Next, Medtronic is struggling with product approval delays and recalls. For instance, Medtronic recalled the Puritan Bennett ventilators. In another example, a clinical study for the Simplicity Renal Denervation System will take more time than expected. Third, Medtronic received an FDA warning letter on its headquarters for the diabetes business.

Despite the current challenges, Medtronic has many strengths and should interest most dividend growth, investors. It is the largest medical technology company globally, with $30.1 billion in sales in fiscal 2021. Medtronic has four main business areas: Cardiovascular ($10.8 billion in sales), Medical Surgery ($8.7 billion in sales), Neuroscience ($8.2 billion in sales), and Diabetes ($2.4 billion in sales). In addition, the company had 200 product approvals in 2020, more than 190 approvals in 2021, and a robust pipeline. Furthermore, Medtronic’s scale, R&D, and manufacturing capabilities make it difficult for new entrants to gain traction.

Medtronic Pipeline in 2021
Source: Medtronic Investor Relations

Dividend growth investors should like Medtronic’s dividend growth rate was 10.24% CAGR in the past decade, 9.55% CAGR in the trailing 5-years, and 8.0% CAGR in the past 3-years. In addition, the payout ratio is still reasonable at ~50%, suggesting more dividend increases in the future.

Medtronic is a stock most investors should look at now. The forward dividend yield of about 2.49% is above the 5-year average of 2.14%. The PE ratio is down to ~17.8 compared to the average range of about 15.4 to 19.0 in the past decade. The stock price is below the 50-day and 200-day exponential moving average (EMA), as seen in a screenshot from  Stock Rover*. However, there is some risk that it may take a couple of years to resolve the FDA letter, which may pressure the stock.

Medtronic Select Data
Source: Stock Rover*

Disclosure: Long CLX and MDT.

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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