Image Source: Pixabay

Dividend stocks struggled most of the year compared to the Magnificent Seven and other tech stocks. However, after accounting for dividend reinvestment, the Dividend Aristocrats finished 2024 with a positive return of about 7.8%.

The three worst-performing Dividend Aristocrat Stocks in 2024 were Albemarle (ALB), Brown-Forman (BF-A, BF-B), and Nucor (NUE). The 2024 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 is in the Industrial sector, which did somewhat better, but 12% in the Materials sector struggled. The list contains few tech stocks except International Business Machines (IBM). So, it will underperform when software and hardware equities do well.

Market Overview

This year is a good one from the market’s perspective. The U.S. Federal Reserve lowered rates three times in 2024 and is planning for two decreases in 2025. Inflation has declined substantially and has settled between 2% and 3% annually. It’s not yet at the 2% target, but the values are decent. The Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) Price Index are below 3%. The CPI is 2.7%, while the PCE is 2.8% for 2024.i

Although housing and auto sales are still below their pre-pandemic highs, the stock market responded positively. The Nasdaq 100 is up 25% after a 49% gain in 2023, fueled by growth in Artificial Intelligence (AI) after the passage of President Biden’s CHIPS Act. The Dow Jones Industrials has gained a respectable 13% while the broader S&P 500 Index increased 25%. Both the Nasdaq 100 and S&P 500 have been setting records in 2024. Besides the stock market, risk-based alternative assets soared.

The past year contained further good news, including positive Gross Domestic Product (GDP) numbers, a still-low 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, manufacturing continues to struggle. Moreover, a recession did not happen in 2024, despite general sentiment aligning with my prediction at the end of 2023. However, all bets are off in 2025.

The Dow Jones Industrial Average did not perform well in relative terms. This year, the DJIA climbed roughly 12.9%, reinvesting dividends after accounting for index changes. This is worse than the Nasdaq Composite (+29.6%), the S&P 500 Index (+24.9%), and the Russell 2000 (+11.5%), as seen in the chart from Stock Rover*.

Overall, dividend stocks did not do as well as tech and growth stocks for the second year in a row.

Source: Stock Rover*

3 Worst Performing Dividend Aristocrat Stocks in 2024

The three worst-performing Dividend Aristocrat Stocks in 2024 were Albemarle (ALB), Brown-Forman (BF.A, BF.B), and Nucor (NUE), based on our watch list in Stock Rover*. This year is the first year Brown-Forman and Nucor have appeared on our list. Albemarle was on last year’s list. Nucor is also on the worst performing Dividend Kings in 2024 list.

Source: Stock Rover*

Albemarle

Albemarle Corporation (ALB), founded in 1887, is a global specialty chemicals company. It operates across three segments, Energy Storage (lithium for batteries), Specialties (catalysts, bromine, and other performance chemicals), and Ketjen (catalysts for refining). The firm is a market leader in lithium for electric vehicles. 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.

Total revenue was $9,617 million in 2023 and $6,502 million in the last twelve months.

The firm has struggled since 2023 because of lower lithium prices and rising interest rates. However, 2024 presented even more significant challenges. Rising interest rates globally, concerns about a potential recession, and declining lithium prices weighed heavily on the company’s stock performance. Also, investors fear that a change in administration may affect EV rebates and policies. 

That said, the global demand for electric vehicles is expected to continue its strong trajectory, driving lithium demand. Albemarle’s strategic investments in expanding its lithium production capacity and technological advancements in lithium extraction and processing position the company to capitalize on this growing market.

Albemarle’s stock price is down about 41% in 2024, pushing the yield to around 1.88%. The quarterly dividend rate grew at about 1.8% 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 balance sheet is sound. 

Investors should look at this stock now because of the extended share price decline and the low earning multiple based on normalized earnings. In addition, the payout ratio suggests future dividend increases, adding to the 30-year streak.

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Source: Stock Rover*

Brown-Forman

Brown-Forman Corporation, founded in 1870, is a leading global producer and marketer of alcoholic beverages. Brown-Forman produces, markets, and sells spirits, wine, and ready-to-drink cocktails. The company boasts a diverse portfolio of premium brands, including iconic names like Jack Daniel’s Tennessee Whiskey, Woodford Reserve Bourbon, Finlandia Vodka, Herradura Tequila, and Korbel California Champagne. 

Total revenue was $4,178 million in fiscal year 2024 and $4,074 in the last twelve months.

In 2024, the company faced several challenges that significantly impacted its stock performance. Rising input costs, particularly for raw materials, packaging, and freight, eroded margins.Additionally, increased competition and changing consumer preferences, such as the shift towards premiumization and the growing popularity of ready-to-drink (RTD) cocktails, presented hurdles. Furthermore, macroeconomic headwinds, including inflation and fears of a recession, dampened consumer spending, impacting demand for more costly premium spirits. These factors combined to negatively impact the company’s financial performance, leading to a decline in the share price.

However, there are reasons to believe Brown-Forman can eventually return to growth. The company has a strong track record of innovation and focuses on premium brands, which are generally more resilient to economic downturns. Furthermore, the company has been investing in expanding its presence in key global markets, such as Asia and Latin America, where the demand for premium spirits is expected to continue to grow. Additionally, initiatives to enhance operational efficiency and cost control can help mitigate the impact of inflationary pressures.

Brown-Forman’s share price has been punished for weak revenue and earnings per share growth expectations. Consequently, the company’s dividend yield is 2.4%, a decade high and almost double the 5-year average. The dividend safety is still solid, with an estimated forward payout ratio of 41% and strong cash flow generation. Brown-Forman also has a long track record of consistent dividend increases of 5% to 6% annually.

The company should recover, and even though it’s trading at an earnings multiple of 21.1X, it is below the trailing 5-year and 10-year averages. While the company faces challenges, its strong brands, global reach, and focus on premiumization provide a solid foundation for long-term growth. Hence, investors may want to look at this Dividend Aristocrat with a 40-year streak of increases.

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Source: Portfolio Insight*

Nucor

Nucor, founded in 1905, is a leading manufacturer of steel products in North America. Its diverse product portfolio includes steel beams, bars, sheet steel, and steel plates, serving various industries like construction, automotive, and manufacturing. Nucor’s competitive advantage lies in its mini-mill strategy, utilizing electric arc furnaces for steel production, offering greater flexibility and lower operating costs than traditional integrated mills.

Total revenue was $31,714 million in 2023 and $31,363 million in the last twelve months.

In 2024, Nucor faced significant headwinds due to a sharp decline in steel prices amid weakening demand across key sectors. Rising interest rates and concerns about a potential recession further dampened market sentiment, impacting construction activity and automotive production. These factors combined significantly impacted Nucor’s profitability, leading to a substantial decline in its share price. Most steel companies are facing similar challenges.

However, there are reasons to believe that Nucor can return to growth in 2025. The U.S. infrastructure bill is expected to boost demand for steel in the construction sector over time. Additionally, lower interest rates may increase demand for vehicles. Tariffs may potentially change market conditions, too. Furthermore, Nucor’s focus on cost efficiency should help it navigate challenging market conditions and lower demand, improving its profitability.

However, despite the share price decline, the dividend yield is only 1.85%, below the 5-year average. The equity has a 51-year dividend increase streak with an average growth rate of about 3.5% in the past 10 years. Nucor recently increased its quarterly dividend by a penny. That said, the dividend safety is solid, with a 12% payout ratio and an A-/Baa1 lower-to-upper medium investment grade rating. In addition, Nucor has an excellent dividend quality grade of a ‘B+,’ meaning it is in the 80^th percentile of stocks.

Despite the decline in share price, Nucor is not undervalued. It trades at a P/E ratio of ~14X, more than the 5- and 10-year ranges. Also, the dividend yield is relatively low. Furthermore, the steel industry is facing significant challenges.

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Source: Portfolio Insight*

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