2024 was an excellent year for the major stock indices. But the Dow Jones Industrial Average(DJINDICES: ^DJI) had only a 12.9% return, compared to 23.3% for the S&P500(SNPINDEX: ^GSPC) and 28.6% for the Nasdaq Composite.
Eight of the thirty Dow components will lose value by 2024. And while these companies come from completely different industries, they are all similar because they are dividend-paying value stocks.
Here’s a quick overview of each company to help you determine which dividend stocks are the best buys right now.
Image source: Getty Images.
A rally at the end of the year Boeing(NYSE: BA) wasn’t enough to climb past Nike(NYSE:NKE)making the aircraft manufacturer the worst performing Dow stock in 2024:
^IXIC data by YCharts.
Nike’s decades-long moat in footwear and sportswear is under threat. Competitors have achieved sales and margin growth, while Nike has struggled to identify trends in purchasing behavior. Sales growth has stalled and margins have fallen as the transition from wholesale distribution to a mix of wholesale and direct-to-consumer has not been successful.
Excluding the short stock market sell-off due to COVID-19 in March 2020, Nike is at an eight-year low. The good news is that expectations are low and stocks could recover if things improve. But Nike operates in a cyclical industry and is highly exposed to international markets, including China. So investors should only consider the stock if they believe in the brand’s long-term growth and are willing to hold out through periods of volatility. Nike has a decent dividend yield of 2.1%, which is an incentive to wait and give the company time to recover.
Boeing has been performing worse than the industrial sector for years. The COVID pandemic had a drastic impact on the company’s business model. There were also problems with the release of the 737 MAX. Then came supply chain challenges and inflation. Early last year, a door plug blew out of a 737 MAX in flight, causing a new wave of safety problems for the company. Throw in a bad year for Boeing’s Defense, Space, & Security business, and it’s easy to see why the stock performed so poorly last year and is down 50% over the past five years.
Like Nike, Boeing now has a new CEO, and expectations are low, so it wouldn’t take much for the stock price to turn around. Investors got some good news in December when the company received a major order for 737 MAX aircraft, but much more will be needed to restore confidence in Boeing’s lineup and ability to innovate.
Boeing cut its dividend at the start of the pandemic and hasn’t restored it since, making it a pure turnaround candidate with no passive income potential at this point.
The healthcare sector has become a bigger part of the broader market and now makes up about 10% of the S&P 500. Big names in healthcare too Amgen(NASDAQ: AMGN), Merck(NYSE:MRK), Johnson & Johnson(NYSE: JNJ)And UnitedHealth Group(NYSE:UNH) play a crucial role in the Dow Jones, making up 14.6% of the index.
The healthcare sector sold off heavily in the final three months of 2024, making Dow healthcare stocks among the worst-performing components in the index.
But all four stocks could beat the S&P 500 as investors lean toward value and away from growth stocks in 2025. Valuations of all four companies have fallen to attractive levels based on forward earnings expectations.
UNH PE ratio (forward) data according to YCharts.
Amgen has increased its dividend for twelve years in a row and currently yields 3.5%. Clinical trials for the weight-loss drug are going well, which could become a big catalyst for the stock.
Merck is a huge pharmaceutical company with reliable profits, dividend growth and a current yield of 3.2%. But the company is facing increasing competition, which has put pressure on the company to expand its product pipeline. Merck is one of the most valuable stocks in the healthcare industry for people who trust its innovation to pay off.
J&J’s growth has been quite disappointing lately, but it still generates a ton of free cash flow, has had over 60 consecutive years of dividend increases, and currently has a high yield of 3.4%.
UnitedHealth is an insurer that has been a huge winner over the long term, rising more than 400% over the past decade. The company’s market cap has risen to half a trillion dollars, making it the second most valuable US healthcare company after Eli Lilly.
The shares were battered in December due to controversy over the murder of then-CEO Brian Thompson, as well as regulatory concerns. UnitedHealth is the most expensive of the four Dow healthcare stocks and has the lowest current yield of the group at 1.6%.
UnitedHealth rebounded at the start of the year, but fell 6% on January 16 in response to earnings results. However, the stock could rebound quickly if new management can address investor concerns.
McDonald’s(NYSE:MCD) ended 2023 at an all-time high. With valuations being stretched towards 2024, a pullback was not surprising. However, McDonald’s remains an excellent dividend stock to buy and hold for the long term.
McDonald’s franchise business model makes the company highly resilient to recessions. Since about 95% of McDonald’s restaurants are franchised, the company makes most of its money from royalties on food items and rent, rather than from sales.
With 48 years of consecutive dividend increases and a 2.5% yield, McDonald’s stands out as an extremely reliable dividend stock to buy in 2025 and hold for the long term.
Chevron(NYSE: CVX) is another rock-solid dividend stock to buy now. Despite operating in the cyclical and sometimes volatile oil and gas industry, Chevron has enjoyed 37 consecutive years of dividend increases and a significant 4.1% yield. So it immediately stands out as a powerful choice for generating passive income.
Chevron can grow its dividend regardless of the market cycle, thanks to its geographically diverse operations and exposure to different aspects of the oil and gas value chain – not just exploration and production.
Chevron is off to a flying start in 2025, with a gain of 8.3% year-to-date. That makes Chevron the best-performing Dow stock so far this year.
Buying quality dividend-paying companies on sale is an excellent way to boost your passive income stream while participating in the stock market. But no one knows what the market or the eight stocks on this list will do in the short term.
So instead of trying to time the market by outperforming the benchmark by 2025, focus on the companies you’re most interested in and that best suit your portfolio.
Boeing and Nike are compelling turnaround plays. Healthcare stocks Johnson & Johnson, Merck, Amgen and UnitedHealth have a balance between income and value. And Chevron and McDonald’s are two leading companies with a long track record of increasing the dividends they pay to shareholders.
Add it all up and you see that all eight stocks are worth a closer look in 2025.
Consider the following before buying shares in Boeing:
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Daniel Foelber has positions at Nike. The Motley Fool holds positions in and recommends Chevron, Merck and Nike. The Motley Fool recommends Amgen, Johnson & Johnson and UnitedHealth Group. The Motley Fool has a disclosure policy.
Can the eight worst-performing Dow Jones stocks in 2024 beat the S&P 500 in 2025? was originally published by The Motley Fool