The Dow Jones industrial average has advanced 7.8 per cent so far in 2010, less than half of 2009's 19 per cent increase. The Dow has also trailed the S&P 500 Index and Nasdaq Composite. Some of its components have done even worse. Here are the five worst-performing Dow dividend stocks of 2010. They may continue to underperform the market in 2011. On the other hand, some trade at discounts to comparable investments and may be due for a rebound. Below, they are ordered by 2010 return, from bad to worst.
5. Microsoft Corp. is the world's largest software company, selling the Windows operating system.
Its stock has fallen 15 per cent in 2010, but it has rebounded 8.9 per cent in the past three months. Fiscal first-quarter net income soared 51 per cent to $5.4-billion and earnings per share rocketed 55 per cent to 62 cents, elevated by a smaller float. Revenue grew 25 per cent to $16-billion (U.S.). The gross margin widened from 83 per cent to 85 per cent. Microsoft has nearly $34-billion of net cash (cash minus debt).
Microsoft's stock trades at a trailing earnings multiple of 11, a forward earnings multiple of 9.4, a sales multiple of 3.3 and a cash flow multiple of 8.3, 69 per cent, 60 per cent, 76 per cent and 53 per cent discounts to software averages.
TheStreet's stock model rates Microsoft "buy" with a target of $29.30, implying 9 per cent upside.
4. Alcoa Inc. produces and sells aluminum.
Its stock has dropped 16 per cent year-to-date, but has rebounded 28 per cent in the past three months. Third-quarter net income decreased 21 per cent to $61-million. Earnings per share fell a more-modest 14 per cent to 6 cents. Revenue gained 15 per cent. The gross margin improved from 16 per cent to 17 per cent and the operating margin stretched from 2.4 per cent to 4.6 per cent. Alcoa carries $843-million of cash and $9.3-billion of debt, equaling a quick ratio of 0.7 and a debt-to-equity ratio of 0.7.
Its stock sells for a forward earnings multiple of 12, a book value multiple of 1 and a cash flow multiple of 6.5, 26 per cent, 71 per cent and 70 per cent discounts to metal averages.
TheStreet's stock model rates Alcoa "hold", awarding the company a poor volatility score of 2.5 (out of 10) and a weak growth score of 2.6.
3. Hewlett-Packard Co. sells hardware, including laptops and servers. It has a services division which offers outsourcing and consulting.
Its stock has tumbled 17 per cent in 2010, in part due to CEO Mark Hurd's departure. Fiscal fourth-quarter net income expanded 5.2 per cent to $2.5-billion. Earnings per share grew 11 per cent to $1.10, boosted by a lower share count. Revenue stretched 8.1 per cent. The gross margin widened from 26 per cent to 27 per cent, but the operating margin stagnated at 11 per cent. HP has $11-billion of cash and $22-billion of debt, equal to a 0.6 debt-to-equity ratio.
Hewlett-Packard's stock trades at a forward earnings multiple of 7.3, a book value multiple of 2.4 and a cash flow multiple of 8.1, 52 per cent, 49 per cent and 38 per cent peer discounts.
TheStreet's stock model rates Hewlett-Packard "hold", awarding the company a performance score of 4.6 (out of 10) and a volatility score of 3.5.
2. Cisco Systems Inc. makes networking equipment.
Lower-than-anticipated fiscal 2011 guidance led to a sell-off in Cisco this fall. Its stock has fallen 19 per cent in 2010 and 4.3 per cent in the past three months.
Fiscal first-quarter net income gained 8 per cent to $1.9-billion. Earnings per share rose 13 per cent to 34 cents, boosted by a smaller float. Revenue grew 19 per cent to $11-billion. The operating margin fell from 24 per cent to 22 per cent. Cisco has nearly $24-billion of net cash, equaling a quick ratio of 2.5 and a debt-to-equity ratio of 0.3.
Cisco's stock sells for a forward earnings multiple of 10, a book value multiple of 2.4 and a cash flow multiple of 10, 41 per cent, 23 per cent and 35 per cent industry discounts.
TheStreet's stock model rates Cisco "buy" with a target of $22.13, suggesting 15 per cent upside.
1. Bank of America Corp. is a diversified financial-services company, offering retail, commercial and investment banking. Its stock has fallen 27 per cent year-to-date amid foreclosure scrutiny and a tepid economic recovery. It has dropped 16 per cent in three months.
Bank of America's third-quarter loss widened to $7.3-billion, or 77 cents a share, hurt by a goodwill impairment charge in its credit card business due to a new regulatory rule. The company swung to an adjusted profit of $3.1-billion, or 27 cents. Revenue fell 2 per cent. The operating margin rose from 11 per cent to 31 per cent.
Bank of America's stock trades at a forward earnings multiple of 7.4 and a book value multiple of 0.5, 32 per cent and 42 per cent discounts to financial industry averages.
TheStreet's stock model rates Bank of America "sell," awarding it poor scores in all fundamental categories.