The stock market has done well for most investors this year despite the coronavirus pandemic. The Dow Jones Industrial Average (DJI) is up ~5.7% year-to-date (as of December 20, 2020). The tech-heavy S&P 500 (SPX) is up ~17.5% as of the same date and the Nasdaq 100 is up a whopping 46.6%. Compared to last year this is a mixed bag. The Dow 30 and S&P 500 did not perform as well as in 2019, but the Nasdaq 100 had a solid year driven by mega-cap tech stocks. Many of these stocks seemingly defied gravity and benefitted from the COVID-19 pandemic. A robust IPO market also helped the Nasdaq this year. Everyone always likes to talk about the winners, but it is also instructive to take a look at the losers for the year. In some cases, these stocks are facing temporary difficulties and may be a good value. In this article, I discuss the three worst-performing stocks in the Dow Jones to date in 2020.

Dow Jones Industrial Average Changed This Year

The Dow 30 changed this year due to Apple’s 4-for-1 split. The new components were Salesforce (CRM), Honeywell International (HON), and Amgen (AMGN). The three stocks that were removed from the list were Exxon Mobil (XOM), Pfizer (PFE), and Raytheon Technologies (RTX). The changes went into effect before the market opened on Monday, August 31^st. Note that Exxon Mobil and Pfizer were also on the Dogs of the Dow 2020 list.

3 Worst Performing Dow Jones Stocks in 2020

So, after accounting for these changes the three worst-performing Dow Jones Stocks in 2020 were: Boeing (BA) at -31.6%, Walgreens Boots Alliance (WBA) at -29.2%, and Chevron (CVX) at -25.3% as of this writing based on my watch list in StockRover*. If Exxon Mobil was still in the Dow 30 it would be on the list instead of Chevron with a -35.5% return.

Source: StockRover*

Boeing does not currently pay a dividend due to the impact of COVID-19 and the 737 MAX issues. Walgreens Boots has the distinction of being one of the three worst Dow 30 performers for two years in a row. Chevron’s top and bottom lines have been impacted by low oil prices caused by depressed demand. All three stocks are dividend growth stocks or at least income stocks at one point in the case of Boeing making them of interest for most of my readers. I summarize the challenges each one had in 2020 as well as the positives as the basis for further research.

Boeing’s Perfect Storm

For Boeing 2020 was arguably a perfect storm. The company started the year with the stock still at an elevated valuation although not a record high. The company was still dealing with the aftermath of the 737 MAX crashes and subsequent grounding. But then the COVID-19 pandemic spread around the world bringing air travel to halt. In the worst weeks, airline seat capacity was down as much as 90%. Granted, travel trends improved as the year progressed, but 2020 was a very bad year for Boeing as airlines canceled orders and Boeing could not make deliveries. The dividend was cut and both the top and bottom lines were impacted. It is likely that air travel will not return to pre-pandemic levels for at least a few years.

It’s tough to talk about Boeing as a dividend growth stock at this point since the dividend was cut and the uncertainty of when the dividend will be reinstated. That said, there were three positives that have developed as 2020 closes out and 2021 starts.

First, there are now two approved COVID-19 vaccines, one from Pfizer (PFE) and one from Moderna (MRNA). This has reportedly led to a surge in travel bookings, which may lead to an increase in air travel. Whether this happens is still debatable. The vaccine must still be produced and distributed at scale. But assuming air travel increases should translate to rising airplane orders at some point in the future.

Second, the 737 MAX received a widely publicized approval to fly from the FAA on November 18^th and the first airworthiness certificate for a new plane on December 1^st. This has led to the first deliveries of the 737 MAX to airlines since 2019 and some new orders. Flights resumed in Brazil and it is expected that flights will resume in the U.S. and other locations as well. Canada and Europe are also expected to lift the ban on the 737 MAX.

On the military side of aviation, Boeing was recently awarded $10.7 billion in contracts for the F-15 and other platforms. It is not all roses for Boeing though as the 787 Dreamliner still faces issues with enhanced inspections. That said, 2021 should be a better year for Boeing compared to 2020. There is still risk here though as a return to profitability is still in the future and the dividend may not be reinstated until the end of 2021 or even in to 2022.

Walgreens Boots Alliance Continues to Struggle

This is the second year in a row that Walgreens Boots has struggled, and the retailer was on the list of worst-performing Dow Jones stocks in 2019. If you can believe it, the stock is trading even lower at the end of this year than last year. The stock price is down slightly over -52% in the past 5-years. It is unlikely that the stock will bounce back to its prior highs anytime in the near future.

Walgreens Boots retail pharmacies have been struggling to generate sales growth. The company has been facing reimbursement pressures in the U.S. and Europe. This has pressured top-line growth in U.S. pharmacies. In the U.K., the Boots pharmacies are generating negative sales growth mostly due to a declining market.

Further, COVID-19 impacted store traffic in both the U.S. and UK. In the U.S., stores were still open, while in the UK, stores were limited to selling healthcare-related items, and Boots Opticians were closed. This caused a drop in foot traffic. On the other hand, on-line sales surged.

More recently, Walgreens Boots stock was down due to the launch of Amazon Pharmacy. This will certainly adversely affect sales of prescription drugs at Walgreens Boots and its peers. 

Not all news is bad news though. Walgreens realizes that they need a reason for customers to visit its stores. CVS (CVS) has Minute Clinics. Walgreens Boots announced an initiative to open full-service primary care clinics in its stores in a partnership with VillageMD. Additionally, a new CEO is in place that could provide new strategy and better operational execution.

Investors seeking income may want to look here. The yield is over 4.5%. The payout ratio is low at about 39% based on an annual forward dividend of $1.87 per share and forward earnings per share of $4.83. Walgreens Boots has raised the dividend for 45 straight years making it a Dividend Aristocrat and Dividend Champion.

From a valuation perspective, Walgreens Boots is trading below its historical valuation and that of the broader market. Based on consensus 2020 earnings per share, the forward price-to-earnings ratio is ~8.4, even lower than the end of last year. The trailing 10-year earnings multiple is roughly 13.8. 

There is some risk here though that Walgreens Boots continues to muddle along as competition remains fierce both in the bricks and mortar space and e-commerce. Amazon’s move will put pressure on all pharmacies. Will Walgreens Boots go the way of other retailers facing the e-commerce onslaught or adapt and change?

Chevron Facing an Uncertain Oil Market

Chevron (CVX) is facing a tough year caused by low oil prices due primarily to COVID-19. Oil prices plunged as the COVID-19 pandemic spread around the world. The combination of local restrictions and national restrictions brought travel to a halt. Most oil is used to produce fuel for cars, trucks, ships, and planes. As demand plunged oil prices followed. Oil prices have recovered since the lows in March and April. But many businesses are still letting their employees work remotely, and schools are still mostly in virtual learning.

Besides COVID-19, there has been significant technological advances in the oil industry affecting the supply side. The cost of extracting oil continues to drop allowing big energy companies to drill in deep water, extract from oil sands, and use fracking more easily. Further, more efficient cars and the rise of electric vehicles may keep a lid on demand.

It is clear that oil prices will not recover to their pre-pandemic levels in 2020 or 2021. Some of the changes in the way people work may be permanent. This will continue to pressure oil majors including Chevron. Many oil majors continue to report losses and cash flow has been impacted. Even well run oil companies have suspended or cut their dividends. This includes companies that have been dividend growth stocks or income stocks for many years. For example, Royal Dutch Shell (RDS-A), BP PLC (BP), Occidental Petroleum (OXY), and Helmerich & Payne (HP) have suspended or cut their dividends. 

That said, Chevron is now yielding about 6% and may interest those seeking income. The dividend has been raised for 33 consecutive years making Chevron a Dividend Champion. However, with an uncertain outlook for oil prices and reinstatement of travel restrictions in some countries as new coronavirus infections surge small investors may want to take a wait and see approach.