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.
Image by Steve Buissinne from Pixabay
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.
15. C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW)
Average Analyst Rating Score: 3.2
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) is an American transport company that offers related services and products to its consumers. Analysts predict that the global shipping industry will continue to face a freight recession in 2024. Factors contributing to this challenging outlook include high levels of inventories and reduced consumer spending, which are impacting demand for shipping services. The company also navigated through an extended period of freight recession characterized by an oversupply of shipping capacity. In the first quarter of 2024, C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) reported a 4.3% year-over-year decline in revenues to $4.4 billion. Its operating cash flow also decreased by nearly $288 million to $33.3 million.
From a dividend perspective, though C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) has been growing its payouts for the past 25 consecutive years, there are concerns about the sustainability of its future dividends. For starters, the company’s earnings have been fluctuating for quite some time now. In fact, it has reported declines in revenue consecutively for several quarters, which is concerning for income investors. Moreover, the company has a payout ratio of nearly 80%, which is high considering its fluctuating earnings. In the first quarter, it returned $90 million to shareholders through dividends and share repurchases. Its trailing twelve-month levered free cash flow is over $335 million. C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW)’s quarterly dividend comes in at $0.61 per share and has a dividend yield of 2.91%, as of June 15. Analysts have a consensus Hold rating on the stock, which makes CHRW one of the worst dividend aristocrat stocks on our list.
C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) experienced a decline in hedge fund positions in Q1 2024. 19 hedge funds in Insider Monkey’s database reported having stakes in the company, down from 26 in the previous quarter. These stakes are worth over $237 million in total.
14. McCormick & Company, Incorporated (NYSE:MKC)
Average Analyst Rating Score: 3.2
McCormick & Company, Incorporated (NYSE:MKC) is an American spice and extract manufacturing company that markets and distributes a wide range of related products. The company started 2024 with strong first-quarter earnings after struggling with volume trends in 2023. In the first quarter of 2024, it reported revenue of $1.6 billion, which showed a nearly 3% growth from the same period last year. The company’s operating cash flow for the period also grew to $138 million, from $103 million in the prior-year period. Though its revenue was up, the company continues to face challenges with volumes, which saw a slight decline of 1%. This drop in volumes mainly occurred due to the company’s strategic choices to discontinue low-margin businesses and sell a small canning business. In addition, its underlying volume and product mix remained flat compared to the first quarter of 2022.
McCormick & Company, Incorporated (NYSE:MKC) saw growth in its revenues mainly because of its pricing actions. However, analysts believe that increasing prices is just a short-term solution to navigate through challenges posed by lower sales volumes. For 2024, the company expects to boost its profit margins with its higher prices strategy. Moreover, it expects sales to range from a decrease of 2% to 0% compared to 2023 or a decrease of 1% to an increase of 1% on a constant currency basis. This growth outlook in a challenging environment could be seen as stable, but it may not be considered exceptional if market conditions are highly competitive. T
McCormick & Company, Incorporated (NYSE:MKC) has a forward P/E of 23.36 and its 5-year average P/E is 25.6. The stock achieved its high of $105 per share in mid-2022 but has not returned to that level since. Instead, it fell to as low as $60 per share in late 2023. Analysts have a consensus Hold rating on the stock, which places it on our list of the worst dividend aristocrats to buy now.
McCormick & Company, Incorporated (NYSE:MKC) currently offers a quarterly dividend of $0.42 per share for a dividend yield of 2.48%, as of June 14. The company has been growing its dividends consistently for the past 38 years.
Investment management company Ave Maria highlighted growth prospects for McCormick & Company, Incorporated (NYSE:MKC) in its Q1 2024 investor letter. Here is what the firm has to say:
“McCormick & Company, Incorporated (NYSE:MKC) manufactures and distributes spices and other flavor products to the food industry. This seemingly mundane business achieves extraordinary returns on capital as the spices and seasoning category tends toward a single dominant supplier which can simplify the complex inventory requirements of its customers. Over the coming years, McCormick should benefit from increasing demand for diverse cuisines, the trend towards cooking from scratch, and the younger consumers’ preference for heat via its Cholula hot sauce products.”
McCormick & Company, Incorporated (NYSE:MKC) was a part of 27 hedge fund portfolios at the end of Q1 2023, down from 38 in the preceding quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a collective value of more than $1.4 billion.
13. The Clorox Company (NYSE:CLX)
Average Analyst Rating Score: 3.2
The Clorox Company (NYSE:CLX) is a California-based manufacturer of consumer and professional products. The company currently offers a quarterly dividend of $1.20 per share and has a dividend yield of 3.59%, as recorded on June 14.
Last year, The Clorox Company (NYSE:CLX) suffered from cyberattacks and is still struggling with the aftermath. In fiscal Q3 2024, the company reported a 5% year-over-year decline in its sales at $1.81 billion. The decrease was primarily due to lower volume from temporary distribution losses caused by the widespread disruptions of the cyberattacks. The attacks also disrupted production, leading to uncertainty in the company’s operations. Its year-to-date operating cash flow also declined significantly by 51% to $355 million.
The Clorox Company (NYSE:CLX) reached its all-time high in August 2020 when it was trading at around $237 apiece. Since then, the stock has declined by nearly 44%. Volume growth has been difficult to achieve for the company since COVID-19 led consumers to buy its products rapidly. The company’s 2024 outlook indicates that it is still grappling with demand challenges, as organic sales are expected to increase only modestly in FY24. The company has also lowered some aspects of its guidance, putting additional pressure on the stock. Management expects sales will hit the lower end of the revised estimate range from early February. In addition, earnings growth is projected to be slower than initially planned due to weak results in Q3.
Last month, Barclays highlighted in its investors’ note that companies that managed to raise prices faster than inflation are at a greater risk if the economy faces demand and persistent inflation pressures. The firm added The Clorox Company (NYSE:CLX) to that list. Analysts have maintained a consensus Hold rating on the stock, which makes CLX one of the worst dividend aristocrat stocks on our list. Bireme Capital also discussed The Clorox Company (NYSE:CLX)’s pricing strategy in its Q4 2023 investor letter.
“As we entered the second half of 2023, the valuation of many consumer staples companies perplexed us. The SPDR Consumer Staples ETF traded at a healthy 24x earnings despite low-single-digit projected earnings growth and a dramatic rise in interest rates. On top of the rich valuations, many of the underlying businesses face long-term headwinds and have been papering over volume declines with price increases. We shorted a few of these companies in Q3, including The Clorox Company (NYSE:CLX).
In fiscal 2023 (ended in June), Clorox sold 10% fewer products than the year before. However, they raised prices by 16%, allowing the firm to report 4% revenue growth despite the sharp volume declines. This is not a sustainable way to grow a business. Tobacco companies operate similarly and trade at below 10 times earnings. In contrast, Clorox traded at more than 30x earnings when we initiated our short position.”
At the end of March 2024, 38 hedge funds tracked by Insider Monkey reported having stakes in The Clorox Company (NYSE:CLX), down from 39 in the previous quarter. These stakes are valued at over $1.6 billion collectively. With over 2 million shares, Citadel Investment Group was the company’s leading stakeholder in Q1.
12. Hormel Foods Corporation (NYSE:HRL)
Average Analyst Rating Score: 3.4
An American food processing company, Hormel Foods Corporation (NYSE:HRL) ranks twelfth on our list of the worst dividend aristocrat stocks according to analysts. The company has been paying regular dividends to shareholders since its IPO in 1928 and has raised its payouts for 58 years straight. It offers a quarterly dividend of $0.2825 per share and has a dividend yield of 3.71%, as of June 14.
Hormel Foods Corporation (NYSE:HRL) reached its all-time high in mid-2022 and has declined by over 42% since then. Wall Street has been negative about the stock because it failed to reach its previous highs and posted disappointing results in FY23. The company has struggled to pass on rising costs to consumers, and its turkey business continues to face challenges due to avian flu. In the second quarter of 2024, it reported year-over-year declines in both volume and pricing for whole-bird turkeys, along with reduced net sales in the convenient meals and proteins segment. Its international and retail volumes also dropped during the quarter by 7% and 5%, respectively. The international volumes showed a decline mainly because of lower sales in China and the lower commodity export volumes.
Hormel Foods Corporation (NYSE:HRL) is down by over 7% this year so far and over 26% in the past 12 months. Street analysts have maintained a consensus Hold rating on the stock.
Insider Monkey’s database of Q1 2023 indicates that 27 hedge funds held stakes in Hormel Foods Corporation (NYSE:HRL), up from 25 in the previous quarter. The consolidated value of these stakes is more than $604.3 million.
11. Illinois Tool Works Inc. (NYSE:ITW)
Average Analyst Rating Score: 3.5
Illinois Tool Works Inc. (NYSE:ITW) is an American manufacturing company that specializes in consumables and specialty products. The company faced a difficult demand environment across most of its segments in the first quarter of 2024. Its revenue came in at $4 billion, which declined by 1% and its organic growth by 0.6%. The company also operates in the semiconductor and welding industries, which are currently experiencing cyclical challenges. These could affect the company’s revenue growth, potentially causing a decline in its stock price. Illinois Tool Works Inc. (NYSE:ITW)’s welding revenue fell by 3.5% on a year-over-year basis. Analysts have a consensus Hold rating on the stock.
In addition, Illinois Tool Works Inc.’s (NYSE:ITW) debt-to-equity ratio stands at 2.75, significantly above the industry average. This indicates that the company is relying more on borrowed funds, suggesting a higher level of financial risk. The company has approximately $8.33 billion in total debt as of the most recent quarter. The stock has a forward P/E of 22.94, which has doubled since 2012. The stock price has also quadrupled during the same period.
Illinois Tool Works Inc. (NYSE:ITW) has been raising its dividends for 51 consecutive years. The company pays a quarterly dividend of $1.40 per share and has a dividend yield of 2.38%, as of June 14.
In May, Julian Mitchell from Barclays held an Underweight rating on Illinois Tool Works Inc. (NYSE:ITW) with a $230 price target. It is one of the worst dividend aristocrat stocks on our list.
The number of hedge funds tracked by Insider Monkey owning stakes in Illinois Tool Works Inc. (NYSE:ITW) grew to 45 in Q1 2024, from 36 in the previous quarter. These stakes are collectively valued at over $1.55 billion. Among these hedge funds, Fisher Asset Management was the company’s leading stakeholder in Q1.
10. International Business Machines Corporation (NYSE:IBM)
Average Analyst Rating Score: 3.5
International Business Machines Corporation (NYSE:IBM) is a New York-based technology company that specializes in AI, automation, and hybrid cloud solutions. on April 30, the company declared a 0.6% hike in its quarterly dividend to $1.67 per share. This was the company’s 29th consecutive year of dividend growth. As of June 14, the stock has a dividend yield of 3.95%.
Though International Business Machines Corporation (NYSE:IBM) has raised its dividends for nearly three decades, its dividend growth has remained slow. Over the past five years, it has raised its dividends at an annual average rate of 1.9%. In terms of revenue growth, the company faces significant challenges in its different segments. For instance, in the first quarter of 2024, its consulting, financing, and infrastructure businesses reported declines on a year-over-year basis. This could cause a blow to the company’s overall revenue, considering its consulting business is a major competitive advantage for it. In addition, despite spending heavily on acquisitions, the company’s revenue growth has been disappointing. In 2019, it bought Red Hat for $34 billion, and last year, it spent approximately $6 billion to acquire nine companies. If the $6.4 billion deal for HashiCorp is finalized, it will be IBM’s latest addition to its portfolio.
Diamond Hill Capital also mentioned these business headwinds in its Q4 2023 investor letter:
“Other bottom contributors included our short positions in Garmin and International Business Machines Corporation (NYSE:IBM), as well as our long position in Chevron. IBM’s software and consulting businesses were solid in the quarter, helping drive revenue growth. But the company faces numerous fundamental headwinds in both these businesses, and we expect it will struggle to meet cash-flow guidance.”
One of the main reasons for this slow revenue growth is despite having a strong history with AI, the company hasn’t made this technology its core focus in the past. However, things have changed since 2020 when Arvind Krishna became the company’s CEO. Since then, AI played a role in driving IBM’s sales growth and the stock has surged by roughly 46%. Despite having a relatively strong balance sheet and steady cash flow generation, IBM faces challenges due to its debt position. The company’s debt grew by $3 billion since the end of 2023 to $59.5 billion in Q1 2024. Moreover, its debt-to-equity ratio comes in at 2.7, which raises concerns for income investors. Moreover, its payout ratio of 66.8% is also high.
International Business Machines Corporation (NYSE:IBM) shares reached an all-time of around $206 per share in 2013 and haven’t reached that level again. Although the stock nearly hit $200 earlier this year, it has since fallen back. Analysts have maintained a consensus Hold rating on the stock, which makes it one of the worst dividend aristocrat stocks on our list.
Insider Monkey’s database of 920 hedge funds at the end of Q1 2024 indicated that 49 funds held stakes in International Business Machines Corporation (NYSE:IBM), down from 50 in the previous quarter. These stakes are valued at over $1 billion.
9. Archer-Daniels-Midland Company (NYSE:ADM)
Average Analyst Rating Score: 3.6
Archer-Daniels-Midland Company (NYSE:ADM) is an Illinois-based food processing company. It ranks ninth on our list of the worst dividend aristocrat stocks. On May 1, the company declared a quarterly dividend of $0.50 per share, which fell in line with its previous dividend. It is a Dividend King with a dividend growth streak over 51 years. The stock’s dividend yield on June 14 came in at 3.36%.
Analysts presented a bearish stance on Archer-Daniels-Midland Company (NYSE:ADM) as the company is affected by commodity prices as a gain processor and trader. Increased supply has led to falling prices, negatively impacting the company’s results. In the first quarter of 2024, it reported a revenue of $21.8 billion, which showed a 9.24% decline from the same period last year. The company had a rough start to 2024 when it appointed a new interim CFO amidst an ongoing accounting investigation. It also disclosed the pending investigation by external legal counsel regarding specific accounting practices and procedures with ADM’s Nutrition segment. After this event, the market lost confidence in the company and the stock declined by 29% on January 22. Seth Goldstein, analyst at Morningstar Investment Service, made the following comment on this news:
“This week’s news damages ADM’s growth strategy, it damages their credibility and their plan to shift away from just creating merchandising and crop trading into this more stable, higher profit nutrition business.”
In the first quarter of 2024, Archer-Daniels-Midland Company (NYSE:ADM) reported a 39% decline in its Nutrition segment revenue to $84 million. The stock is down by over 18% year-to-date. Diamond Hill Capital also highlighted the current environment for ADM in its first quarter 2024 investor letter:
“Other bottom contributors in Q1 included Archer-Daniels-Midland Company (NYSE:ADM). Shares of agricultural commodities and products company ADM sold off materially following the announcement its CFO had been put on administrative leave due to inter-segment financial reporting issues (particularly related to the nutrition segment) and the SEC had an open investigation into the matter. ADM has since published its fiscal year 2023 10-K, which included restatements of inter-segment operating profits from 2018-2023. Since this was an inter-segment issue, the consolidated financials did not need to be restated. While we are watching further developments, we remain comfortable with the business valuation at the current level.”
According to Insider Monkey’s database, 40 hedge funds owned stakes in Archer-Daniels-Midland Company (NYSE:ADM) in Q1 2024, up from 34 in the preceding quarter. These stakes are valued at over $966.3 million.
8. Kimberly-Clark Corporation (NYSE:KMB)
Average Analyst Rating Score: 3.6
Kimberly-Clark Corporation (NYSE:KMB) is a Texas-based consumer goods company that offers a wide range of related products to its consumers. The company offers a quarterly dividend of $1.22 per share and has a dividend yield of 3.50%, as of June 14. It has been growing its dividends consistently for the past 52 years. It is among the worst dividend aristocrat stocks according to analysts.
Major consumer goods companies have raised their prices since the pandemic to offset rising costs, which are now beginning to stabilize from their highest levels. This has resulted in heightened competition from budget-friendly brands as consumers prioritize value for money. Kimberly-Clark Corporation (NYSE:KMB) reached its high in August 2020 when it was trading at around $158 per share. The stock hasn’t been able to achieve this share price since then, in fact, it has declined by nearly 12% within this timeframe. In the first quarter of 2024, the company reported a 1% decline in its revenue from the same period last year at $5.15 billion. The company reported a slight growth of 1% in volumes.
Kimberly-Clark Corporation (NYSE:KMB) impressed investors with its first-quarter earnings, however, the company’s fundamentals remain in question. Though the company’s dividend growth streak is impressive, it is important to note that it is paying out more in dividends than it earned. Its 5-year average payout ratio comes in at 76.35%, a level not recommended by analysts. Moreover, the company’s debt position is also not up to par. It has approximately $8 billion in debt as of the most recent quarter and its debt-to-equity ratio of 6.75 is very high. This level of debt can be risky as it implies significant leverage.
As of the close of Q1 2024, 36 hedge funds tracked by Insider Monkey reported having stakes in Kimberly-Clark Corporation (NYSE:KMB), which remained unchanged from the previous quarter. These stakes are collectively valued at nearly $1 billion. With over 1.5 million shares, AQR Capital Management was the company’s leading stakeholder in Q1.
7. Automatic Data Processing, Inc. (NASDAQ:ADP)
Average Analyst Rating Score: 3.6
Automatic Data Processing, Inc. (NASDAQ:ADP) ranks seventh on our list of the worst dividend aristocrat stocks. The New Jersey-based management services company offers a quarterly dividend of $1.40 per share and supports a dividend yield of 2.31%, as of June 14. It has been rewarding shareholders with growing dividends for the past 49 years.
Automatic Data Processing, Inc. (NASDAQ:ADP)’s bears argue that the company benefits significantly from higher interest rates, as it can secure higher-yielding deposits with banks and earn more net interest on these balances. In fiscal Q3 2024, the company’s pre-tax earnings increased by $142 million, reaching $1.184 billion. Over the first nine months of its fiscal year, higher interest income has accounted for about half of ADP’s income growth. However, if the Federal Reserve lowers rates, the company will likely see a decrease in profit growth as the benefit from higher interest income diminishes.
Polen Capital also addressed this concern in its Q4 2023 investor letter.
“Automatic Data Processing, Inc. (NASDAQ:ADP) modestly underperformed during the quarter. The company’s revenue and earnings growth has been in line with our expectations. Still, market participants appear to be concerned about the prospect of higher unemployment and lower interest rates in 2024, factors that could present modest headwinds to ADP’s growth. Our view of the business and its long-term growth trajectory haven’t changed, and we believe the company continues to execute at a high level.”
Of the 920 hedge funds tracked by Insider Monkey at the end of Q1 2024, 52 funds held investments in Automatic Data Processing, Inc. (NASDAQ:ADP), down from 54 in the previous quarter. These stakes have a collective value of over $3.8 billion.
6. Consolidated Edison, Inc. (NYSE:ED)
Average Analyst Rating Score: 4
An American energy company, Consolidated Edison, Inc. (NYSE:ED) ranks sixth on our list of the worst dividend aristocrat stocks according to analysts. While utilities may not exhibit high growth potential compared to other sectors like technology or healthcare, they are valued for their stability, dividends, and predictable cash flows. Consolidated Edison, Inc. (NYSE:ED)’s revised dividend payout strategy aims to allocate 55% to 65% of its adjusted earnings toward dividends. This adjustment reflects a shift toward retaining more earnings internally to fund investments in clean energy initiatives and other growth opportunities. While this strategy is intended to accelerate earnings per share growth in the future, uncertainties surrounding regulatory challenges could pose risks to the company’s financial position.
In terms of dividend sustainability, Consolidated Edison, Inc. (NYSE:ED) supports a dividend yield of 3.65%, as of June 13 and has raised its payouts for 50 consecutive years. However, investors should not expect dividend hikes of 15-20%. Instead, its dividend growth is expected to be gradual and steady. Over the past decade, the company has raised its dividends at an annual average rate of 2.8%, which is modest compared to the sector average of 5.21%, and has not fully kept pace with inflation. In the past five years, its average annual dividend growth came in at 2.41%. It currently pays a quarterly dividend of $0.83 per share.
The number of hedge funds tracked by Insider Monkey owning stakes in Consolidated Edison, Inc. (NYSE:ED) grew to 35 in Q1 2024, from 28 in the previous quarter. These stakes are worth nearly $445 million in total.
5. T. Rowe Price Group, Inc. (NASDAQ:TROW)
Average Analyst Rating Score: 4
T. Rowe Price Group, Inc. (NASDAQ:TROW) is a Maryland-based asset management company with nearly $1.54 trillion in assets under management (AUM) as of May. Though the company’s AUM grew from $149 trillion a month ago, they are significantly impacted by market fluctuations. Analysts have a cautious outlook on the stock due to the company’s record-high outflows, exceeding $80 billion by the end of 2023. Moreover, in the first quarter of 2024, net outflows totaled $8 billion and they are expected to continue through 2024. However, the company expects to balance these outflows with higher sales and lower redemptions.
T. Rowe Price Group, Inc. (NASDAQ:TROW) experienced significant outflows as a result of poor performance exacerbated by higher interest rates aimed at controlling inflation, geopolitical instability, and market uncertainty. The recent quarter market the company’s 12th consecutive quarter of outflows, totaling over $148 billion leaving the platform since early 2022. Street analysts have maintained a consensus Sell rating on the stock with a $114 price target, which reflected a 1% downside potential.
On May 7, T. Rowe Price Group, Inc. (NASDAQ:TROW) declared a quarterly dividend of $1.24 per share, which fell in line with its previous dividend. Overall, the company maintains a 38-year streak of consistent dividend growth. The stock’s dividend yield on June 14 came in at 4.32%.
T. Rowe Price Group, Inc. (NASDAQ:TROW) was included in 24 hedge fund portfolios at the end of Q1 2024, down significantly from 32 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of over $938 million. With nearly 3 million shares, Citadel Investment Group was the company’s leading stakeholder in Q1.
4. Expeditors International of Washington, Inc. (NASDAQ:EXPD)
Average Analyst Rating Score: 4
Expeditors International of Washington, Inc. (NASDAQ:EXPD) ranks fourth on our list of the worst dividend aristocrat stocks on our list. The American logistics company announced a 5.8% hike in its quarterly dividend to $0.73 per share. Through this increase, the company stretched its dividend growth streak to 30 years. The stock has a dividend yield of 1.18%, as of June 14.
In the first quarter of 2024, Expeditors International of Washington, Inc. (NASDAQ:EXPD) reported subpar earnings as the industry continued to be unstable because of global conflicts, persistent inflation, weak economies, and unpredictable demand. The company’s revenue declined by 15% on a year-over-year basis to $2.2 billion. Its net earnings attributable to shareholders and operating income also fell by 25% and 22%, respectively. In addition, its cash flow fell short of covering its dividends. The company generated $257 million in operating cash flow and paid $361 million to shareholders during the quarter.
Analysts have a consensus Moderate Sell rating on the stock with a $107.7 price target, which represents a downside potential of nearly 13%. It is among the worst dividend aristocrat stocks on our list.
As of the end of the March quarter of 2024, 28 hedge funds in Insider Monkey’s database held stakes in Expeditors International of Washington, Inc. (NASDAQ:EXPD), up from 23 in the previous quarter. These stakes have a total value of nearly $161 million.
3. Aflac Incorporated (NYSE:AFL)
Average Analyst Rating Score: 4
Aflac Incorporated (NYSE:AFL) is a Georgia-based insurance company that provides supplemental insurance services to its consumers. In the first quarter of 2024, the company reported revenue of $5.4 billion, up 13.2% from the same period last year. Its net earnings for the period came in at $1.9 billion, growing from $1.2 billion in the prior-year period. Although the company’s business is showing strong signs, analysts have raised concerns about its operations in Japan.
Aflac Incorporated (NYSE:AFL) does the majority of its business in Japan, and the complex macroeconomic environment has heightened the importance of interest rate-related risks. According to the company’s 10K report, Aflac Japan’s Solvency Margin Ratio (SMR) is highly sensitive to interest rate changes, which may require adopting a more cautious strategy. Its net earned premiums in Japan for the first quarter were $1.8 billion, down 16.3% from the same period last year. This drop was mainly due to reinsurance transactions from the prior year and limited pay policies reaching paid-up status. Its total adjusted revenues in the country also declined by 11.4% to $2.5 billion. Last month, Truist Financial maintained a Hold rating on the stock with an $82 price target. Overall, analysts have a consensus Sell rating on AFL with an $86.2 price target, which reflects a downside potential of 1%. Aflac Incorporated (NYSE:AFL) is among the worst dividend aristocrats on our list.
Aflac Incorporated (NYSE:AFL) currently offers a quarterly dividend of $0.50 per share and has a dividend yield of 2.30%, as of June 14. The company holds a 42-year track record of consistent dividend growth.
With a collective stake value of over $302.8 million, 24 hedge funds owned positions in Aflac Incorporated (NYSE:AFL) in Q1 2024, down from 28 in the previous quarter, according to Insider Monkey’s database. Among these hedge funds, Ariel Investments was the company’s leading stakeholder in Q1.
2. Franklin Resources, Inc. (NYSE:BEN)
Average Analyst Rating Score: 4.1
Franklin Resources, Inc. (NYSE:BEN) ranks second on our list of the worst dividend aristocrat stocks according to analysts. The company currently offers a quarterly dividend of $0.31 per share and has a dividend yield of 5.68%, as of June 14. It has been growing its dividends consistently for the past 48 years.
Analysts are giving Franklin Resources, Inc. (NYSE:BEN) a cold shoulder as mutual funds have been experiencing a rise in outflows and the company’s primary products are packaged in traditional actively managed mutual funds. The company’s revenue for the quarter came in at $2.2 billion, up 11% from the same period last year. Analysts predict 7.5% and 7% growth in revenue in 2024 and 2025, respectively. This contrasts with a historical growth rate of nearly 9% over the past five years. The company’s over half client base is made up of retail investors, who typically have shorter investment horizons. This could result in higher outflows and a decrease in its AUM. Analysts have a consensus Sell rating on the stock, with a $25.03 price target.
At the end of March 2024, 31 hedge funds in Insider Monkey’s database owned stakes in Franklin Resources, Inc. (NYSE:BEN), down from 26 in the previous quarter. These stakes are valued at nearly $200 million in total. With 1 million shares, Fairfax Financial Holdings was the company’s leading stakeholder in Q1.
1. Amcor plc (NYSE:AMCR)
Average Analyst Rating Score: 4.2
Amcor plc (NYSE:AMCR) is a global packaging company that develops and produces a wide range of packaging solutions. On May 1, the company declared a quarterly dividend of $0.125 per share, which was consistent with its previous dividend. It has raised its dividends for 40 consecutive years. AMCR tops our list of the worst dividend aristocrat stocks.
Amcor plc (NYSE:AMCR) reported strong earnings in fiscal Q3 2024. However, it reported revenue of $3.41 billion, which declined by 7% from the same period last year. Not only this, the revenue also missed analysts’ estimates by $83.14 million. The drop in revenue was because of the weakness in the healthcare sector and in its North American beverage business. In its earnings report, the company mentioned that the price mix negatively affected sales by about 3%. This was due to larger-than-expected volume declines in high-margin healthcare categories, which the company had already anticipated and mentioned in the previous quarter. In terms of dividends, the company has a high payout ratio of over 72%, which is concerning for income investors.
Analysts have maintained a consensus Sell rating on Amcor plc (NYSE:AMCR), which makes it one of the worst dividend aristocrat stocks on our list.
Insider Monkey’s database of Q1 2024 indicated that 17 hedge funds held stakes in Amcor plc (NYSE:AMCR), down from 21 in the previous quarter. These stakes are valued at over $65.6 million in total.
While we acknowledge the potential of dividend growth stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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