The Dividend Kings spent most of the year in the red, only recovering in the last few months. They should finish with a positive return in 2023, albeit only in the low-to-mid single digits, barring sudden changes. They are currently up about 4.8%, giving the group their third positive return in four years.

The three worst-performing Dividend King stocks in 2023 were Hormel Foods Corporation (HRL), Tootsie Roll (TR), and Black Hills Corporation (BKH).

The category struggled because the Dividend Kings have a larger percentage of stocks in the Utility, Consumer Defensive, and Healthcare Sectors. However, once interest rates stabilized, these categories recovered.

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 Kings did not perform well in relative terms. Last year, the category performed well, providing downside protection in the 2022 bear market. This year, the Dividend Kings have climbed roughly 4.3% 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.

Source: Stock Rover

Past Year’s Worst Performers

The three worst-performing Dividend Kings in 2020 were Northwest Natural Holding (NWN), Federal Realty Investment Trust (FRT), and Black Hills Corporation (BKH). In 2021, the three worst-performing Dividend Kings in 2021 were Lancaster Colony (LANC), Leggett & Platt (LEG), and MSA Safety (MSA). The three worst-performing Dividend Kings in 2022 were Stanley, Black & Decker (SWK), Target (TGT), and 3M Company (MMM). Of the three, only SWK has a positive return in 2023. Target and 3M still struggled because of issues specific to each firm.

3 Worst Performing Dividend King Stocks in 2023

The three worst-performing Dividend King Stocks in 2023 were: Hormel Foods Corporation (HRL) at -29%, Tootsie Roll (TR) at -21%, and Black Hills Corporation (BKH) at -19%, as of this writing, based on our watch list in Stock Rover. This is the first time on our annual list for Hormel and Tootsie Roll but the second appearance for Black Hills.

Source: Stock Rover

Hormel Needs Turkey to Recover

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.

(Click on image to enlarge)

Source: Portfolio Insight

Tootsie Roll is Experiencing Margin Pressure

Tootsie Roll Industries revolves around the iconic candy created in 1907. The confectionery company has grown slowly but steadily, and today, it sells candy and gum products in the United States, Canada, and Mexico. Besides the Tootsie Roll, other brands are DOTS, Junior Mints, Andes, Charms, Blow Pops, Sugar Daddy, Razzles, Sugar Babies, Charleston Chew, Dubble Bubble, etc.

Total revenue was $687 million in the calendar year 2022 and $762 million in the last twelve months.

The firm typically grows volume and sales incrementally through brand extensions, seasonal products, and price increases. It has not historically acquired other companies or brands. But as a niche and small player in the space, Tootsie Roll faces strong competitors. Also, inflation has pressured margins by raising costs. Moreover, the impetus for change is limited. Tootsie Roll is under close insider ownership, with the Chairwoman and CEO, Ellen R. Gordon, controlling approximately 57.1% of the common stock and 82.8% of the Class B shares. Her ownership stake has been rising because of share buybacks.

Despite membership as a Dividend King, Tootsie Roll may interest few investors. The stock usually trades at an elevated price-to-earnings ratio (P/E ratio) and is now at ~26X, even after the share price declined. However, the regular cash and stock dividends total 4%, and the dividend growth history goes back 56 years, making it attractive to those seeking income.

Source: Stock Rover

Black Hills Offers an Excellent Dividend Yield

Black Hills is a diversified electric and natural gas utility. The company generates, transmits, and distributes electricity to 220,000 customers in Colorado, Montana, South Dakota, and Wyoming. It also sources, transmits, stores, and distributes natural gas to roughly 1,107,000 customers across Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming.

Total revenue was $2,552 million in 2022 and $2,531 million in the last twelve months.

Like most utilities, Black Hills grows by increasing its rate base. It invests in its electricity and natural gas infrastructure, causing the rate base to rise. Because utilities have a set rate of return, a higher net asset base allows them to earn more revenue. Black Hills can also request rate increases and cost recovery. Along these lines, Black Hills plans to increase its earnings per share by 4% to 6% annually.

That said, Black Hills’ stock is facing a few challenges. First, interest rates have surged in 2023, making utility yields less competitive than safer U.S. Treasuries. Higher interest rates also cause expenses to climb. Second, warmer weather has reduced natural gas demand for heating, affecting revenue. Lastly, the company has been impacted by inflation and higher operating costs.

That said, Black Hills is now yielding 4.6%, almost a decade high. The equity has a 53-year dividend increase streak with an average growth rate of about 5%. Further, the dividend safety is excellent, with a 61% payout ratio and a BBB+/Baa2 lower-medium investment grade rating. In addition, Black Hills has a superior dividend quality grade of an ‘A+,’ meaning it is in the 95^th percentile of stocks.

Besides the excellent dividend yield, Black Hills is undervalued, trading at a P/E ratio of ~13.7X. This value is below the five- and ten-year ranges. It may be an excellent time to snap up a few shares.

(Click on image to enlarge)

Source: Portfolio Insight

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