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Dividend stocks struggled most of the year, only turning upward in the past few months. The Dividend Aristocrats performed better as a group than other dividend growth and income stocks. However, they struggled, too. After a poor 2022, they are currently up about 8.7%.

The three worst-performing Dividend Aristocrat Stocks in 2023 were Albemarle (ALB), Hormel Foods Corporation (HRL), and NextEra Energy (NEE).

The Dividend Aristocrats did not do as well as the broader market because nearly 25% are in the Consumer Staples sector, which performed poorly. Another one-quarter are Industrials, which did better.
 

Market Overview

After an up-and-down year, 2023 is finishing strong. Investors were waiting for a signal about inflation, and they received several. The U.S. Federal Reserve has paused thrice; the dot plot indicates up to three decreases in 2024. Next, the Producer Price Index (PPI) was down month-to-month, meaning wholesale prices are declining. Lastly, the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) Price Index are nearing 3%. Contrary to popular belief, the bottom line is inflation is down and likely heading to sub-3%.

Interest rates responded positively by falling quickly. Similarly, stock markets climbed and continue to do so. The Nasdaq 100 is up an astounding ~50%+, and the Dow 30 is setting all-time highs. The year contains further good news, including solid Gross Domestic Product (GDP) numbers, a sub-4% unemployment rate, and job growth.

Despite the naysayers trying to convince people everything is terrible, the opposite is seemingly true. However, on the negative side, the yield curve is still inverted, and manufacturing continues to struggle.

That said, a recession did not happen in 2023, surprising many economists. Further, it is hard to argue that one will occur in 2024 unless the economy sours quickly.

The 2023 Dividend Aristocrats did better than other dividend categories but not as well as the broader indexes. This year, the Dividend Aristocrats have gained about 7.6% with dividends reinvested, as seen in the chart from Stock Rover, which is worse than the Nasdaq Composite (+45%), Dow Jones Industrial Average (+13%), S&P 500 Index (+26%), and the Russell 2000 (+18%).

Overall, dividend stocks did not do as well as tech and growth stocks until the last couple of months of the year. However, they still had a positive return in 2023.

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Source: Stock Rover
 

Last Year’s Worst Performers

The three worst performing Dividend Aristocrats in 2021 were V.F. Corporation (VFC), Clorox (CLX), and Medtronic (MDT). The three worst performing Dividend Aristocrats in 2022 were V.F. Corporation (VFC), Stanley Black & Decker (SWK), and West Pharmaceutical Services (WST). Both SWK and WST recovered nicely in 2023, gaining ~36% and ~51%, respectively. In contrast, VFC reduced its dividend multiple times and was removed from the Dividend Aristocrats list.
 

3 Worst Performing Dividend Aristocrat Stocks in 2023

The three worst-performing Dividend Aristocrat Stocks in 2023 were Albemarle (ALB), Hormel Foods Corporation (HRL), and NextEra Energy (NEE), based on our watch list in Stock Rover. This year is the first for all three to appear on our list.
 

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Source: Stock Rover
 

Albemarle’s Tailwinds Are Fading

Albemarle Corporation is one the lesser-known Dividend Aristocrats. It was founded in 1887. Today, it is a specialty chemical company focusing on lithium, bromine, and catalysts. Albemarle is a leader in all three markets. It has some of the lowest-cost lithium sources, a key component in electric vehicle batteries. Also, the firm is the second-largest producer of bromine. Lastly, it makes specialty catalysts for refineries.

Total revenue was $7,320 million in 2023 and $9,882 million in the last twelve months.

The firm recently missed estimates because of lower lithium prices. Prices are a function of demand, and high interest rates are affecting vehicle sales globally. That said, demand should rise with time as electric vehicles displace internal combustion engine vehicles.

Albemarle’s stock price is down about 30%, pushing the yield to around 1.1%. The dividend grew at about 4.3% on average in the trailing 5-years. However, what it lacks in yield and growth, the company makes up in dividend safety. The payout ratio is a minuscule 7.2%, and the leverage ratio is only 0.8X.

Investors should look at this stock now because of the low earnings multiple. The forward P/E ratio is 7.0X. In addition, the payout ratio suggests future dividend increases, adding to the 29-year streak. Moreover, Stock Rover’s valuation rating is high. 

Source: Stock Rover
 

Hormel’s Yield Is Near a Decade High

Hormel is the U.S. market leader in branded and commodity pork, turkey, and nuts. The over 130-year-old company owns well-recognized labels, like Hormel, Black Label, Dinty Moore, Planters, Jennie-O, Skippy, Spam, Applegate, etc. Many brands are leaders with significant market share. Spam has a 50%+ market share in shelf-stable meats. Planters has a 17% share in its segment, Skippy is the No. 2 spread with 18% of the market, and Hormel’s poultry operations total 5%.

Total revenue was $12,110 million in the fiscal year 2023 and the last twelve months.

Hormel is facing challenges because of the COVID-19 and the aftereffects. During the pandemic, the firm’s Food Service segment struggled because people were not eating at restaurants. As consumer behavior returned to normal, they ate less at home, impacting the Retail segment. Next, sales to China were affected by operational challenges due to extended pandemic-related closures. Lastly, the avian flu has caused culling of turkeys, reducing birds for export and domestic use.

That said, Hormel should return to growth because of its market position. Additionally, the firm has expanded internationally by acquiring businesses in China, Brazil, and Indonesia. The company has a limited international footprint, meaning foreign sales could drive the top and bottom lines.

Hormel’s stock price has been punished for missing estimates and a cautious outlook. Although the company expects growth in 2024, it was below analyst projections. Consequently, Hormel’s dividend yield is over 3% and near a decade high. The dividend safety is still solid but not as good as before. The estimated forward payout ratio is 68%, and the acquisitions have increased the leverage ratio to about 1.5X. 

Hormel should recover, and even though it’s trading at an earnings multiple of 20.5X, it is probably undervalued based on normalized earnings. Hence, investors may want to look at this Dividend King with a 57-year streak of increases.

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Source: Portfolio Insight
 

NextEra Has Favorable Tailwinds

NextEra Energy is a holding company for a regulated utility and a wholesale producer of renewable energy. The regulated Florida Power & Light (FPL) utility serves about 12 million people through 5.8 million accounts, making it the largest American utility. NextEra Energy Resources is the world’s biggest generator of wind and solar power. It is our third worst performing Dividend Aristocrat in 2023.

Total revenue was $20,956 million in the calendar year 2022 and $27,400 million in the last twelve months.

High interest rates have pressured utility stock prices. That said, NextEra should experience long-term growth because of the rapidly rising Florida population and favorable regulatory climate. Additionally, the utility is acquisitive, adding Gulf Power in 2019 and GridLiance in 2021. The company is quickly expanding its unregulated renewable energy business with a 19 MW backlog.

Investors should do well with NextEra over time. The P/E ratio is down to 19.7X, below the 5-year range. The dividend yield is not as high as other utilities, but it is 3%+, just shy of the decade high.

Source: Portfolio Insight

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