Market Overview

Stocks followed an excellent 2020 with another good year in 2021. The stock market’s momentum is continuing into the last week of 2021. Investor fears of rising interest rates in response to inflation and fear of the Omicron variant caused a volatile several weeks before turning up again. However, the news from South Africa about the surge and decline of Omicron is positive, and a recent article described milder infections.

Inflation is the highest in four decades. However, unlike in 1982, unemployment is nearing a record low, the stock market is in a bull market, wages are trending higher, the US is not in a recession, and the US economy is on track for the fastest growth since 1984. The US Federal Reserve has pivoted and is more hawkish on inflation. The Fed is tapering bond purchases quicker and may increase the Federal Funds rate by as many as three times in 2022.

The tech-heavy Nasdaq-100 is up another ~17.0% (as of December 28, 2021). This performance is not as good as last year, when the Nasdaq-100 was up about 48.1% in late December and had a great year. However, this year’s return is still a good one.

The Dow Jones Industrial Average (DIA) gained ~18.6% YTD and will probably double last year’s total return. Mega-cap stocks are driving the Dow’s performance. The best performing stock in the Dow 30 is Home Depot (HD), followed closely by Microsoft (MSFT). Microsoft is a very safe dividend stock and arguably one of the best dividend growth stocks to own with its ‘AAA’ balance sheet. Goldman Sachs is the third-highest performing stock, which is not surprising since Wall Street is having a great year with record profits and probably bonuses.

The S&P 500 Index is the top-performing major index and about +29.3% YTD, adding almost 2% since the end of last week. This performance is better than 2020 in late December when the S&P 500 Index gained ~17.5%. The S&P 500 or a Total Stock Market Index Fund is usually a core part of workers’ retirement portfolios in 401(k) plans.

The Dow Jones 30 in 2020 had a decent year with a +9.7% total return (with dividends reinvested). This year the Dow 30 is up ~19.7%, as seen in the chart from in StockRover*, doing better than the Nasdaq-100 and the Russell 2000 (+15.4%) Indices. As a result, the Dow 30 in 2021 performed exceptionally well but not as good as the S&P 500 or Nasdaq (+23.9%)

Source: StockRover*

Last Year’s Worst Performers

The three worst-performing Dow Jones stocks in 2020 were Boeing (BA), Walgreens Boots Alliance (WBA), and Chevron (CVX). Boeing (-5.1%) is on the list again this year, making it the second year in a row it was on the worst-performing list. Walgreen Boots had a good year at +32.1% YTD due to optimism about a new CEO and the potential spinoff of the Boots business. The stock is still yielding 3.75%+, and dividend investors may want to look there. Chevron also had a positive return of +48.0% YTD after a dismal 2020. However, this return is expected since oil, and natural gas prices surged in 2021. As a result, Chevron was an undervalued dividend growth stock to buy at the beginning of the year with a yield of over 5.5%. The stock is still yielding more than 4.5% today.

3 Worst Performing Dow Jones Stocks In 2021

The three worst-performing Dow Jones Stocks in 2021 were: Walt Disney (DIS), Verizon Communications (VZ), and Boeing (BA), based on my watch list in StockRover*.

Source: StockRover*

Boeing is having its second poor year in a row. The planemaker has been down (-36.98%) in the past two years due to the adverse effects of COVID-19 and operational missteps. Disney has also suffered during COVID-19. Verizon is performing well, but the company is being affected by a broader slowdown in growth rates for cell phone service. In addition, rising competition from cable companies and a refocused AT&T (T) are a concern.

I summarize each stock’s challenges in 2021 and the positives as the basis for further research.

Boeing (BA) Struggles

Boeing is one of the largest aerospace and defense firms in the world. The company has three operating segments: Commercial Airplanes, Defense, Space & Security, and Global Services. Boeing is an oligopoly for commercial planes of 130 seats or more with Airbus (EADSF). Boeing’s main products are the 737, 747, 767, 777, 787, F/A-18 Super Hornet, F-15EX, P-8A Poseidon, CH-47F Chinook, AH-64 Apache, and numerous others. In a normal time not affected by COVID-19, Commercial Airplanes generate about 60% of sales and two-thirds of operating profit. The Defense, Space & Security segment has about 25% of sales and 13% operating profit, while Global Services has around 15% of sales and 21% operating profit.

Boeing has struggled during the COVID-19 pandemic. Local government and travel restrictions caused global passenger traffic to plummet in 2020 and has remained depressed. As a result, a Boeing experienced a downturn in orders. However, passenger traffic is up in the US and slowly recovering internationally. Boeing expects passenger traffic to return to pre-pandemic levels in 2023 or 2024. On the plus side, cargo traffic is above 2019 levels, and the business environment is improving.

Source: Boeing Investor Relations

Besides the negative impact of COVID-19, Boeing has struggled the past several years with operational missteps. The company’s 737 MAX is the subject of well-publicized challenges resulting in the extended grounding of the fleet reducing orders. In addition, the 787 Dreamliner has been the subject of production issues and Federal Aviation Administration (FAA) inspections and directives. As a result, deliveries of the 787 were halted.

In standard times, Boeing is a good dividend stock to own. Commercial aircraft sales tend to increase annually except during recessions. Additionally, defense and space sales grow annually except when programs end. Furthermore, Boeing has a large commercial and military aircraft base that needs services, maintenance, and modernization. 

However, these are not standard times for Boeing and its dividend. Boeing cut the dividend in March 2020 and has not yet resumed paying the dividend. Before the cut, the company had paid a dividend since 1989 and raised the dividend since 2011, making the stock a Dividend Challenger as seen in the chart from  Stock Rover*. It is not clear when Boeing will resume paying a dividend, but the reinstatement is probably at least one year in the future.

Source: Stock Rover*

Disney (DIS) Down But Not Out

Disney is a company almost every investor, and the consumer knows. The company owns some of the most recognized fictional characters in the world. Famous names include Mickey Mouse, Luke Skywalker, Iron Man, Little Mermaid, Mandalorian, Lion King, Cinderella, Captain America, and many more. Disney has monetized these characters through movies, animation, theme parks, games, etc. The company’s well-known brands include Disney, ESPN, ABC, STAR, Pixar, Marvel, Star Wars, Hulu, Hotstar, National Geographic, etc. The company is arguably the premier global media and entertainment company.

However, COVID-19 has had an outsized effect on Disney. Local government and travel restrictions have affected attendance at the company’s theme parks, movies, and cruises. Suspension and delays of sporting events also impacted Disney’s sports channels. Although Disney’s operational performance is improving, the pandemic affects the company. For example, theme parks and cruise ships are operating at reduced capacity. In addition, movie theaters are open at reduced capacity, and content production has been delayed or interrupted. A few more years may pass before Disney returns to a more normal footing.

Disney suspended the dividend early in the pandemic, making it one of the most high-profile companies to do so. Disney usually pays a semi-annual dividend, one of the few US companies to do so. However, the last dividend was paid in 2019, and the company has not indicated when it will be reinstated. As a result, Disney’s stock is trading slightly above the price before the pandemic started but below its all-time high. However, investors seeking dividends may want to wait before purchasing shares.

Source: Stock Rover*

Verizon (VZ) For Income

Verizon is one of the largest telecommunications companies in the US. It operates in an oligopoly for cellular service, with AT&T (T) and T-Mobile (TMUS) accounting for about 90% of the post-paid market. Verizon’s cellular network serves more than 91 million post-paid, 4 million prepaid, and 25 million data services customers. In addition, the company recently acquired Tracfone with another 20 million prepaid customers. Verizon also owns the FiOS fiber network. Verizon has sold most of its fixed-line operations except in the Northeast, where it has about 25 million subscribers. Additionally, Verizon has a small online media group from the acquisitions of AOL and Yahoo, which it may sell.

Verizon launched its 5G service and now offers the faster mmWave technology that it sells as the 5G Ultra Wideband. The company is also rolling out its C-band service. In addition, Verizon is launching a fixed-wireless service that combines its fiber and latest wireless service in another move.

Source: Verizon Investor Relations

Verizon was not significantly affected by the COVID-19 pandemic since consumers and businesses still require cellular, fiber, networking, and telecommunication services. If anything, the demand was higher as the work from home trend accelerated video meetings and remote networking. These activities drove demand for faster speeds and more capacity.

The company is a dividend growth stock with 18 years of annual raises, making it a Dividend Contender. However, the dividend growth rate is low at about 2.6% in the past decade, 2.22% in the trailing 5-years, and 2.11% in the past 3-years.

Source: Portfolio Insight*

Income investors should look at Verizon today. Verizon may be a better buy than AT&T since it has been more focused on its core offerings. In addition, AT&T is cutting its dividend reducing the stock’s appeal. The dividend yield is ~4.86% and more than the average in the past 5-years. The dividend is safe since the payout ratio is only about 50%, and the company has an investment-grade credit rating. Verizon has been a reliable dividend payer. The forward price-to-earnings (P/E) ratio is 9.8X compared to a long-term average of 12.2X to 16.2X. As seen in a screenshot from Stock Rover, the stock price is near the 50-day and 200-day exponential moving average (EMA), as seen in a screenshot from  Stock Rover*. 

Source: Stock Rover*

Thanks for reading 3 Worst Performing Dow Jones Stocks in 2021!