Worst-Performing Dividend Aristocrat Stocks in 2012: One Could Be a Super Value

As Queen Elizabeth knows all too well, even royalty can have an annus horribilis. Among the 10% of stocks in the S&P 500 with a long history of annual dividend increases -- the Dividend Aristocrats -- three had negative total returns in a year when the overall index is up nearly more than 18%.

Pitney-Bowes (PBI), McDonald’s (MCD) and Consolidated Edison (ED) lost serious ground to the index.

PBI Total Return Price Chart

PBI Total Return Price data by YCharts

Pitney Bowes is clearly in a class of ignominy by itself. Its stock price is down more than 40% for the year; a 13% dividend yield makes the total return look slightly less bad. That’s far and away the highest yield among the dividend aristocrats, and about all you need to ever say about why extreme yield chasing is a recipe for disaster. No one ever got rich taking a 13% payout on an investment whose value fell 40%. And making that dividend payout is becoming increasingly hard.

PBI Payout Ratio TTM Chart

PBI Payout Ratio TTM data by YCharts

The Aristocrat with the second highest yield is AT&T (T); its 5.2% dividend yield somehow manages to look small next to Pitney-Bowes.

YCharts earlier looked at the best-performing stocks for 2012 among S&P Dividend Aristocrats.

The two other negative-returners among the Aristocrats are more intriguing stories.

Consolidated Edison was up more than 8% through early summer, but like many utilities it has traded down since then amid a broad correction among slow-growth utilities that had seen their multiples pushed to absurd levels by yield hungry investors.

ED Total Return Price Chart

ED Total Return Price data by YCharts

That 14.8 PE ratio is still above the 13.8 for the S&P 500; historically utilities have traded at a PE discount of 10% or more. Still, it’s getting much closer to reality. Just keep in mind, that current 4.2% dividend yield isn’t going to grow much; over the past five year’s Consolidated Edison has managed to stay an Aristocrat with tiny payout hikes that in aggregate have amounted to just 3.4%.

The fact that McDonald’s had one of the worst total returns among the Dividend Aristocrats looks to be more a case of opportunity, than uh-oh for income seekers. The stock has been knocked around this year amid slower than expected revenue growth. Sure, that might persist for a few quarters --- the company is rolling out new value plans to attract the ever-budget conscious in Europe and other economically challenged markets -- but we’re still talking about the dominant global brand in the fast-food category. Zoom out a bit and the 2012 performance lag is in no way reflective of any fundamental deterioration.

MCD Total Return Price Chart

MCD Total Return Price data by YCharts

Meanwhile, McDonald’s delivers a tasty 3.4% dividend yield at today’s entry point. That’s more than you can earn on an intermediate high-grade corporate bond, and nearly double the yield of the 10-year Treasury. Unlike those fixed-rate offerings, McDonald’s has also served up a 100% increase in its dividend payout over the past five years.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com.

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