A Fresh Look at the Dow Jones’ Underperformers
2024: A Year of Mixed Fortunes
The major stock market indexes had a remarkable 2024, but the Dow Jones Industrial Average lagged behind, with a modest 12.9% return. In contrast, the S&P 500 and Nasdaq Composite surged ahead with returns of 23.3% and 28.6%, respectively. Among the 30 Dow components, eight stocks struggled to gain traction, losing value in 2024. Interestingly, these underperformers share a common trait: they’re all dividend-paying value stocks.
The Bottom Rung: Boeing and Nike
Boeing, the worst-performing Dow stock in 2024, faced a perfect storm of challenges. The COVID-19 pandemic, supply chain disruptions, and safety concerns surrounding the 737 MAX all took a toll on the company’s performance. Despite a new CEO at the helm, Boeing’s stock remains a turnaround play with no passive-income potential at present. Nike, another struggling stock, has seen its sales growth stall and margins decline as it transitions from wholesale distribution to a direct-to-consumer model. Although expectations are low, Nike’s decent dividend yield of 2.1% provides an incentive for investors to hold on and wait for a recovery.
Healthcare Stocks: A Beacon of Hope
The healthcare sector, which accounts for around 10% of the S&P 500, has become a significant player in the market. Big-name healthcare stocks like Amgen, Merck, Johnson & Johnson, and UnitedHealth Group make up a substantial 14.6% of the Dow. Although these stocks suffered in the final quarter of 2024, they could bounce back in 2025 if investors shift their focus towards value stocks. With attractive valuations based on forward earnings guidance, these healthcare stocks offer a compelling combination of income and value.
Amgen: A Weight Loss Catalyst
Amgen, with its 12-year streak of dividend increases and a current yield of 3.5%, is an attractive option. Clinical trials for its weight loss drug are progressing well, which could become a significant catalyst for the stock.
Merck: Reliable Earnings and Dividend Growth
Merck, a massive pharmaceutical company, boasts reliable earnings, dividend growth, and a current yield of 3.2%. Although it faces increased competition, Merck is a solid value stock for those confident in its innovation pipeline.
Johnson & Johnson: A Dividend King
Johnson & Johnson, with over 60 consecutive years of dividend increases, generates substantial free cash flow and currently yields 3.4%. Although its growth has been disappointing lately, J&J remains a reliable dividend stock.
UnitedHealth: A Long-Term Winner
UnitedHealth, an insurance provider, has been a massive long-term winner, increasing by over 400% in the last decade. Despite controversy and regulatory concerns, the stock could quickly rebound if new management can alleviate investor concerns.
McDonald’s: A Franchise Business Model
McDonald’s, with its highly resistant franchise business model, remains an excellent dividend stock to buy and hold over the long term. The company’s 48 years of consecutive dividend increases and 2.5% yield make it an ultrareliable choice for passive income generation.
Chevron: A Rock-Solid Dividend Stock
Chevron, with 37 consecutive years of dividend increases and a sizable yield of 4.1%, stands out as a powerful choice for passive income generation. Its geographically diverse business and exposure to different aspects of the oil and gas value chain make it a reliable option.
Investing in Quality Dividend Stocks
Buying quality dividend-paying companies on sale is an excellent way to fuel your passive income stream while participating in the stock market. Instead of trying to time the market, focus on the companies that best fit your portfolio. Boeing and Nike are compelling turnaround plays, while healthcare stocks Johnson & Johnson, Merck, Amgen, and UnitedHealth offer a balance of income and value. Chevron and McDonald’s are two industry-leading businesses with long track records of increasing dividends. All eight stocks are worth a closer look in 2025.
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