3 Worst Performing Dividend Stocks

Income investors have known for a long-time that as stock prices drop, dividend yields go up. And this is good news right now for those companies left trailing in the wake of this year’s stock market rally. The S&P is up over 17% since January, continuing its positive form during 2020 which saw the key financial index grow more than 35% in the last twelve months.

But if there is a downturn around the corner, the following three poorly performing dividend stocks are enticing choices to hold as a hedge against a looming stock market crash.

Verizon Communications Inc. (VZ)

Communications giant Verizon (VZ) hasn’t had the best of years so far. Its stock is down 5.06%, and the company’s total debt rose 35% year-on-year in the first half of 2021 to its current level of $151.9 billion.

However, its business is thriving, with strong tailwinds from growing 5G adoption and next-gen B2B applications helping the company post a best on record adjusted EPS of $1.37.

From an income perspective, Verizon offers investors a high dividend yield of 4.5%, backed up with a track record of increased payouts since 2007, with the company currently paying out a total annual dividend of $2.51.

Verizon was well covered on its dividend obligations last year since it was able to generate $18.3 billion in free cash flow (FCF), easily funding its $10.2 billion payout costs.

So far in 2021, the company has reported quarterly year-on-year growth of 5.6% in its adjusted EBITDA numbers, underlying a robust profit position which hints at a potential dividend hike later in September when the firm normally announces a dividend increase.

With a wireless network that offers the broadest coverage in the nation, Verizon’s business enjoys a huge barrier to entry, and its moat looks safe for a long time to come. Its trailing twelve month non-GAAP P/E is enticing low at a multiple of 11, and its Forward Price-to-Sales beats the sector at 1.7.

One real issue for investors would be its spiraling unsecured debt to EBITDA ratio, which spiked a massive 45% – from 2.0 to 2.9 – for the first six months of this year. But the Communication Services industry is notorious for high spends, and given that revenues have been rising even faster year-on-year at just under 50%, now is not the time to worry about this too much.

The Procter & Gamble Company (PG)

Procter & Gamble is a Dividend King, having delivered an income to investors for 130 years while also increasing its payout annually for the last 64 of those years as well. But like the other companies on our list, PG has underperformed the market in 2021, leaving shareholders looking for stock growth a somewhat bewildered – while giving dividend seeking investors reason to wonder whether it will continue its dividend rise again this year.

The company’s valuation and share price dropped sharply in March 2021, falling to just $122 after earnings reports showed its profits had tanked 66% from the previous year.

However, this was good news for dividend aficionados looking to buy the stock, since its dividend yield back then of 2.85% was 16% higher than it currently is now. But strong financial metrics in the meantime have driven its price higher again, giving a yield today of just 2.45%. 

Despite a falling and relatively low return for investors, Procter & Gamble (PG) is still much admired by the income-oriented community. Its last dividend rise was a massive 10%, and the firm just had a stellar latest quarter, increasing organic sales growth by 6%, and boosting its EPS by 11%.

The business also saw its FCF productivity increase by 117%, while its revenue of $18.95 billion beat predictions by $570 million.

The firm is a global behemoth in the Consumer Staples sector, and there’s little danger of it falling off its perch. Indeed, with its dividend just costing 50% of its FCF, the opportunity for further hikes looking promising.

Walmart Inc. (WMT)

Walmart (WMT) shares grew almost 10% over the last twelve months – which makes its fall of 1.1% in 2021 all the more concerning. The retailer had a mixed bad of results in its latest quarterly report, with slowing growth and supply chain issues contrasting with higher profit margins and decent revenue trends when measured over a two-year period.

But for dividend watchers, Walmart’s dividend of $2.20 – with a yield of just 1.54% – isn’t exactly headline grabbing. However, with its operating income for the quarter of $6.9 billion rising 32.3% year-on-year, what the dividend lacks in magnitude it makes up for in safety.

It should also be noted that Walmart has raised its payout for the last 48 years, and most analysts expect that streak to continue. Indeed, its current yield is around the average for S&P 500, so it’s not necessarily being left behind by other blue chip companies when it comes to the dividend game.

Walmart’s last financial year saw it add $40 billion to its revenue footprint, and in its latest filing it decreased its debt to capitalization by 780 bps. The business is healthy, and management actually raised their full-year guidance to suggest a high single-digit increase to its EPS and its U.S. operating income. The business is safe – and so too is its dividend.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.