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number cruncher

What are we looking for?

Some market followers believe some of the best performing equities of 2022 could be the “dogs,” or worst performers of 2021. It’s a play on an investment theory – a possible overreaction by investors, combined with tax-loss selling late in the prior year, could lead to a rebound in the current year. As a result, my associate Allan Meyer and I thought we would take a closer look at some of the dogs in the S&P 500 using our investment philosophy focused on safety and value.

The screen

Market capitalization is a safety factor – larger companies tend to be more liquid while having more stable and diverse business operations. To find our dogs, we looked at companies listed in the S&P 500 with a 52-week total return of minus 10 per cent or worse. The list is sorted on this metric in ascending order starting with the worst. We used total returns over the past 52 weeks as opposed to the calendar year 2021 in order to have current data. We still believe it’s a good proxy for the general theory as we’ve just begun the new year.

Dividend yield is the projected annualized dividend divided by the share price. It is another safety measure and the list is exclusive to dividend payers. Debt-to-equity is our final safety factor – it is the total debt outstanding divided by shareholders’ equity. A lower number is preferred, especially for companies that may have had a rough time as of late.

We also focus on value – Allan and I are always looking for bargains. Price-to-earnings is the share price divided by the projected earnings per share. It is a valuation metric, the lower the number, the better the value.

Earnings momentum is the change in annualized earnings over the past quarter. A positive number means earnings are growing, which should lead to long term price appreciation and perhaps dividend hikes. The opposite is true for a negative number.

What we found

Worst-performing S&P 500 dividend stocks over the past 52 weeks

CompanyTickerMkt. Cap. (US$ Bil.)52W Ttl. Rtn. (%)Div. Yld. (%)Debt/Eqty. (%)P/EEarns. Mom. (%)Recent Price (US$)
Global Payments Inc.GPN-N43.7-36.90.735.315.76.4150.55
Activision BlizzardATVI-Q50.9-28.00.724.017.20.365.39
MarketAxess Hldgs.MKTX-Q14.1-
Citrix Systems Inc.CTXS-Q11.9-26.31.51,545.018.3-3.395.80
Viatris Inc.VTRS-Q18.4-26.13.2112.34.1-7.515.22
Fidelity Nat'l Info. Svcs.FIS-N71.9-21.91.340.616.05.2118.04
Teleflex Inc.TFX-N15.3-19.90.474.322.96.0325.75
Lamb Weston Hldgs.LW-N10.0-18.41.4569.629.8-25.168.93
ViacomCBS Inc.VIAC-Q24.0-17.22.6128.49.6-3.436.82
Zimmer Biomet Hldgs.ZBH-N26.6-17.00.866.615.90.0127.38
Leidos Holdings Inc.LDOS-N13.2-14.21.5122.813.65.294.07
VF Corp.VFC-N28.4-12.02.8187.220.120.672.25
Clorox Co.CLX-N22.9-11.52.5682.230.4-25.7186.60
Rollins Inc.ROL-N16.0-
Gap Inc.GPS-N6.8-11.12.684.

Source: Refinitiv Eikon & Wickham Investment Counsel Inc. 

Market data as of Jan. 14

The past year has been kind to investors and financial markets; we were only able to find 15 dividend payers in the S&P 500 with a total return of minus 10 per cent or worse. Retailer Gap Inc. scores well across the board for safety and value. Payment services provider Global Payments Inc. and Leidos Holdings Inc., an engineering, research and IT company, also look interesting on most measures. Pharmaceutical company Viatris Inc. boasts the best value and highest dividend. There are a few names with high debt levels that may warrant caution, while fintech MarketAxess Holdings Inc. is the only name without any debt. However, it is also accompanied by the most expensive valuation. Apparel and footwear giant VF Corp. has the strongest earnings momentum and could be a rebound play as a result.

(Weakness in Activision Blizzard Inc.’s share price obviously caught the eye of Microsoft Corp., which said earlier this week it is buying the video-game maker for US$68.7-billion, or US$95 a share – a 45-per-cent premium to Activision’s closing price on Jan. 14.)

Investors should contact an investment professional or conduct further research before buying any of the securities listed here.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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