In this article, we shared our list of the worst dividend aristocrat stocks.

Dividend aristocrats are companies that have raised their dividend payouts for at least 25 consecutive years. Achieving and maintaining a dividend streak this long is a tough nut to crack. That is why, among the approximately 6,000 stocks listed on the NYSE and NASDAQ, only around 67 companies have earned the distinction of being called dividend aristocrats. This strong dividend growth track records imply that these companies were financially stable enough to sustain their payouts during two significant financial crises: the Great Financial Crisis of 2008 and the COVID-19 pandemic. Besides this, these companies have also shown strong performance relative to the broader market over the years. The Dividend Aristocrat Index has outperformed the wider market with lower volatility since its inception in 2005. Recently we covered the list of the 25 Best Dividend Aristocrats to Buy according to Wall Street analysts.

Analysts have closely observed the performance of dividend aristocrats in the past and in recent times. In a January 2019 blog post titled ‘Dividend Growth Strategies and Downside Protection’, Phillip Brzenk, global head of multi-asset indexes, analyzed how dividend growth strategies perform, particularly in times when the market experiences declines. He said that since the end of 1989, there have been six calendar years when the broader market posted negative performance. Interestingly, in each of these years, the Dividend Aristocrats outperformed the broader equity benchmark by an average of 13.28%. Moreover, they managed to achieve a positive total return in three of those challenging years. He further said, the aristocrats outperformed the market in 53% of instances, with an average outperformance of 0.16%, when their performance was observed on a monthly basis.

As mentioned above, dividend growth stocks have performed better than the overall market. Since its inception in 2005 up until September 2023, the dividend aristocrats index achieved a total return of 10.35%, surpassing the broader market’s return of 9.54% during the same timeframe. Additionally, the dividend aristocrats exhibited lower volatility, at 15.35%, compared to the market’s 16.31%. This indicates that the prices of these stocks are more stable and less prone to frequent changes, demonstrating their relative resilience.

That said, analysts are now turning their attention to different aspects of dividend investing. For taxable investors, dividends can be less favorable compared to share repurchases. Additionally, focusing on dividends limits diversification since around 60% of U.S. stocks and 40% of international stocks do not pay dividends. As a result, portfolios that emphasize dividends are significantly less diversified than those that do not consider dividends in their design. Less-diversified portfolios tend to be less efficient due to a higher potential range of returns without any corresponding increase in expected returns, assuming the exposure to common factors remains constant. Moreover, emphasizing dividends often leads to an overinvestment in U.S. equities, causing a home-country bias and further reducing diversification.

According to this analysis, dividends are a tax-efficient method for returning capital to shareholders. However, investors continue to favor these equities due to their solid performance and the reliable income they offer. Although dividend aristocrats are strong companies with consistent dividend growth, some are less favored by analysts due to factors like industry challenges, macroeconomic conditions, and specific business issues.

Our Methodology:

For our list, we scanned a list of the S&P 500 Dividend Aristocrats, companies that have raised their dividends for 25 consecutive years or more. We then ranked these stocks according to their average analyst ratings from Yahoo Finance, where a higher score signifies the worst rating. The “Recommendation Rating” is a way to assess stocks. It uses a scale from 1 to 5, with each number indicating a different recommendation:

1. Strong Buy

2. Buy

3. Hold

4. Underperform

5. Sell

From this ranking, we selected the stocks with scores of 3 or more.

20. Fastenal Company (NASDAQ:FAST)

Average Analyst Rating Score: 3

Fastenal Company (NASDAQ:FAST) is a Minnesota-based industrial supplies company. It reported earnings miss in the first quarter of 2024. The company’s EPS came in at $0.52 and its revenue was $1.89 billion, falling short of analysts’ estimates by $0.01 and $20 million, respectively. In addition, sales of fasteners, the company’s flagship product line, dropped by 4.4% compared to the same period last year. This marks the third consecutive quarter of declines and the worst performance since 2020 when the industrial economy was severely impacted by the pandemic. The main reason for this decline was sluggish demand. The company’s smaller customers are impacted by rising interest rates and inflation. Sales to local, regional, and government customers dropped by 4.5% in the first quarter.

Analysts have kept a consensus Hold rating on Fastenal Company (NASDAQ:FAST), noting the rampant inflation in raw materials, which indicates that the company may need to consider raising prices. FAST is one of the worst dividend aristocrat stocks according to analysts. You have to keep in mind that Fastenal was among the 10 most shorted stocks in the S&P 500 Index back in 2015 when it was trading at $20 per share. The company proved those investors wrong by tripling its stock price in 9 years and outperforming the broader market index.

In January this year, Fastenal Company (NASDAQ:FAST) achieved its Dividend Aristocrat status. The company currently offers a quarterly dividend of $0.39 per share and has a dividend yield of 2.50%, as of June 14.

At the end of Q1 2023, 29 hedge funds tracked by Insider Monkey held stakes in Fastenal Company (NASDAQ:FAST), compared with 30 in the previous quarter. The overall value of these stakes is over $588 million. With over 5.3 million shares, Cantillon Capital Management was the company’s leading stakeholder in Q1.

19. Dover Corporation (NYSE:DOV)

Average Analyst Rating Score: 3

Dover Corporation (NYSE:DOV) is an American conglomerate that specializes in the manufacturing of industrial products. On May 3, the company declared a quarterly dividend of $0.51 per share, which was in line with its previous dividend. Overall, it has been growing its dividends for the past 67 years. The stock’s dividend yield on June 14 came in at 1.16%.

The industrial sector is experiencing ongoing macroeconomic challenges, including tight monetary policies. Seven industries reported a decline in activity in May and US factory activity contracted more rapidly last month, with output nearing stagnation and order dropping the most in almost two months. The Institute for Supply Management’s index decreased by 0.5 points to 48.7, marking its lowest level in three months. In this economic landscape, Dover Corporation (NYSE:DOV) held up better than its peers. The company reported a 1% year-over-year increase in its revenue at $$2.09 billion. However, it reported a decline in its operating cash flow and free cash flow to $166.6 million and $122 million, respectively. The cash flow declined because of working capital investments.

Though Dover Corporation (NYSE:DOV) has reported stable earnings in Q1 2023 and its dividend history is also strong, we added it to our list of the worst dividend aristocrat stocks due to prevailing industry challenges that are expected to affect the company in the near term.

The number of hedge funds tracked by Insider Monkey owning stakes in Dover Corporation (NYSE:DOV) grew to 28 in Q1 2024, from 21 in the previous quarter. The consolidated value of these stakes is over $836.7 million.

18. Stanley Black & Decker, Inc. (NYSE:SWK)

Average Analyst Rating Score: 3.1

Stanley Black & Decker, Inc. (NYSE:SWK) ranks eighteenth on our list of the worst dividend aristocrat stocks according to analysts. The company specializes in the manufacturing of industrial tools and household hardware. In addition, it also provides security products to its consumers. Recently, the stock was downgraded at Barclays due to consumer weakness experienced by the company in the first quarter of 2024. The firm also reduced its price target on SWK to $86 from $100, based on various valuation metrics, including an estimated enterprise value that is about 12 times EBITDA for 2025 and 2026. The stock is down by over 15% this year so far.

Despite navigating through a period of low demand successfully and surpassing expectations in both revenue and earnings in Q1 2024, Stanley Black & Decker, Inc. (NYSE:SWK) is declining because the company has reiterated its guidance. The company expects its adjusted EPS of $3.50 to $4.50 in 2024. Moreover, the company characterized its consumer demand for its products in Q1 as ‘muted’, and highlighted a decline in volumes within the infrastructure segment of its business.

Stanley Black & Decker, Inc. (NYSE:SWK) currently offers a quarterly dividend of $0.81 per share and has a dividend yield of 3.89%, as of June 14. The company has rewarded shareholders with consistent dividends for 147 years in a row. In addition, it has also raised its payouts for 57 consecutive years.

Stanley Black & Decker, Inc. (NYSE:SWK) was a part of 31 hedge fund portfolios at the end of Q1 2024, which remained the same as in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a total value of over $715.3 million. Israel Englander’s Millennium Management was the company’s leading stakeholder in Q1.

17. Brown & Brown, Inc. (NYSE:BRO)

Average Analyst Rating Score: 3.1

Brown & Brown, Inc. (NYSE:BRO) is a Florida-based insurance company that mainly specializes in risk management. The company reported a revenue of $1.26 billion in the first quarter of 2024 showing a nearly 13% hike from the same period last year. However, its operating cash flow fell to just $13 million, from $60 million in the prior-year period. The company ended the quarter with $581 million available in cash and cash equivalents, down from $700 million in the prior-year period. Analysts expect a notable slowdown in the company’s revenue growth, forecasting an annualized growth rate of 10% by 2024, down from a historical average of 14% over the past five years. This suggests a potential slowdown in the company’s growth momentum, which places BRO on our list of the worst dividend aristocrat stocks.

Brown & Brown, Inc. (NYSE:BRO) has been growing its dividends consistently for the past 30 years and currently pays a quarterly dividend of $0.13 per share. The stock has a low dividend yield of 0.58%, as of June 14.

Madison Investments highlighted the performance of Brown & Brown, Inc. (NYSE:BRO) over the years in its Q4 2023 investor letter. The firm also mentioned how the company managed to rise above the challenges it faced.

“Whether it’s performance by market capitalization, sectors, or any other factor, stock markets are intrinsically cyclical. Some cycles are long-term, taking decades to unfold, and some are short-term, lasting months, weeks, or even days. Many are medium in length, lasting two, three, or several years. Most cycles occur because a trend often creates the seeds of its own reversal. We at Madison Investments are certain that market cycles will occur, but it doesn’t mean we can predict their timing or magnitude. We don’t think we can. This is perhaps a major difference between us and many other investors. Most investors believe it’s their job to time market cycles despite overwhelming evidence that it’s nearly impossible to do so with enough accuracy to make such an effort profitable over long periods. We avoid making calls about market cycles and spend zero minutes thinking about them, not because we don’t think they can be important, but because we think they’re inherently unpredictable in duration.

This mentality of our team is generally true for other kinds of cycles, such as macroeconomic, industry, or company-specific, but is a bit more nuanced for those. We make no explicit prediction about cycles on which we base a buy or sell decision. Still, we are acutely aware of the various cyclical forces at work, and depending on whether we think we have the ability to assess the length or intensity of such, we may incorporate them to various degrees.

Let’s take another example of a recession-resistant investment we’ve held for many years, Brown & Brown, Inc. (NYSE:BRO). We first purchased this company in 2007 in our Mid Cap strategy. As an insurance broker, it gets paid a commission on the premiums that its mostly small business clients pay. Since clients need to maintain insurance coverage even in business downturns, Brown & Brown’s revenues tend to be very steady year by year. Yet, our investment underperformed for the seven years after our initial purchase, and it wasn’t because we paid a high price – the stock traded at a moderate price to earnings (P/E) of 17x at the time. The culprit was profits. After increasing sixfold over the seven years before our purchase, earnings per share were essentially flat from 2007 to 2014, going from $0.68 per share to $0.71 per share. No wonder our investment underperformed the Russell Midcap benchmark over that period. The sources of sluggish profits were manifold, including management turnover, a change in its acquisition strategy, moderate under-investments in dealing with the shift towards more complex insurance needs among its customer base, and a heavy exposure to Florida, a state hit especially hard during the Great Financial Crisis…” (Click here to read the full text)

The number of hedge funds holding positions in Brown & Brown, Inc. (NYSE:BRO) declined to 23 in Q1 2024, from 32 in the preceding quarter, according to Insider Monkey’s database. The consolidated value of these stakes is over $1.6 billion.

16. Essex Property Trust, Inc. (NYSE:ESS)

Average Analyst Rating Score: 3.1

Essex Property Trust, Inc. (NYSE:ESS) is a California-based real estate investment trust company that mainly invests in apartments. On May 15, the company declared a quarterly dividend of $2.45 per share, which was consistent with its previous dividend. In February this year, the company stretched its dividend growth streak to 29 years. The stock has a dividend yield of 3.51%, as of June 14.

Essex Property Trust, Inc. (NYSE:ESS) bears argue that the ongoing trend toward flexible work arrangements is causing a change in tenant preferences. This could impact the demand for some of the company’s properties in urban areas and infill markets, potentially resulting in occupancy rates decline. The macroeconomic outlook for 2024 is uncertain, which is expected to result in below-average growth in rental rates. For FY24, the company forecasts same-property revenue growth ranging from 0.70% to 2.70% and anticipates a decrease in net operating income, with a projected decline of 1.10% to 2.30%. High interest rates can also impact the performance of the company. Higher interest rates translate to increased borrowing expenses for the company, potentially limiting its capacity to acquire or develop real estate properties.

Street analysts have a consensus Hold rating on Essex Property Trust, Inc. (NYSE:ESS), with a $264.8 price target, which shows a downside potential of nearly 5%. ESS is one of the worst dividend aristocrat stocks on our list.

According to Insider Monkey’s database of Q1 2024, 24 hedge funds owned stakes in Essex Property Trust, Inc. (NYSE:ESS), up from 22 in the previous quarter. These stakes are collectively worth over $127 million. Among these hedge funds, Schonfeld Strategic Advisors was the company’s leading stakeholder in Q1.