We recently compiled a list of the 20 Worst Dividend Aristocrat Stocks According to Analysts. In this article, we are going to take a look at where McCormick & Company, Incorporated (NYSE:MKC) stands against the other dividend aristocrat stocks.

Dividend aristocrats are companies that have raised their dividend payouts for at least 25 consecutive years. Achieving and maintaining a dividend streak this long is a tough nut to crack. That is why, among the approximately 6,000 stocks listed on the NYSE and NASDAQ, only around 67 companies have earned the distinction of being called dividend aristocrats. This strong dividend growth track records imply that these companies were financially stable enough to sustain their payouts during two significant financial crises: the Great Financial Crisis of 2008 and the COVID-19 pandemic. Besides this, these companies have also shown strong performance relative to the broader market over the years. The Dividend Aristocrat Index has outperformed the wider market with lower volatility since its inception in 2005. Recently we covered the list of the 25 Best Dividend Aristocrats to Buy according to Wall Street analysts.

Analysts have closely observed the performance of dividend aristocrats in the past and in recent times. In a January 2019 blog post titled ‘Dividend Growth Strategies and Downside Protection’, Phillip Brzenk, global head of multi-asset indexes, analyzed how dividend growth strategies perform, particularly in times when the market experiences declines. He said that since the end of 1989, there have been six calendar years when the broader market posted negative performance. Interestingly, in each of these years, the Dividend Aristocrats outperformed the broader equity benchmark by an average of 13.28%. Moreover, they managed to achieve a positive total return in three of those challenging years. He further said, the aristocrats outperformed the market in 53% of instances, with an average outperformance of 0.16%, when their performance was observed on a monthly basis.

As mentioned above, dividend growth stocks have performed better than the overall market. Since its inception in 2005 up until September 2023, the dividend aristocrats index achieved a total return of 10.35%, surpassing the broader market’s return of 9.54% during the same timeframe. Additionally, the dividend aristocrats exhibited lower volatility, at 15.35%, compared to the market’s 16.31%. This indicates that the prices of these stocks are more stable and less prone to frequent changes, demonstrating their relative resilience.

That said, analysts are now turning their attention to different aspects of dividend investing. For taxable investors, dividends can be less favorable compared to share repurchases. Additionally, focusing on dividends limits diversification since around 60% of U.S. stocks and 40% of international stocks do not pay dividends. As a result, portfolios that emphasize dividends are significantly less diversified than those that do not consider dividends in their design. Less-diversified portfolios tend to be less efficient due to a higher potential range of returns without any corresponding increase in expected returns, assuming the exposure to common factors remains constant. Moreover, emphasizing dividends often leads to an overinvestment in U.S. equities, causing a home-country bias and further reducing diversification.

According to this analysis, dividends are a tax-efficient method for returning capital to shareholders. However, investors continue to favor these equities due to their solid performance and the reliable income they offer. Although dividend aristocrats are strong companies with consistent dividend growth, some are less favored by analysts due to factors like industry challenges, macroeconomic conditions, and specific business issues.

Our Methodology:

For our list, we scanned a list of the S&P 500 Dividend Aristocrats, companies that have raised their dividends for 25 consecutive years or more. We then ranked these stocks according to their average analyst ratings from Yahoo Finance, where a higher score signifies the worst rating. The “Recommendation Rating” is a way to assess stocks. It uses a scale from 1 to 5, with each number indicating a different recommendation:

1. Strong Buy

2. Buy

3. Hold

4. Underperform

5. Sell

From this ranking, we selected the stocks with scores of 3 or more.

McCormick & Company, Incorporated (NYSE:MKC)

Average Analyst Rating Score: 3.2

McCormick & Company, Incorporated (NYSE:MKC) is an American spice and extract manufacturing company that markets and distributes a wide range of related products. The company started 2024 with strong first-quarter earnings after struggling with volume trends in 2023. In the first quarter of 2024, it reported revenue of $1.6 billion, which showed a nearly 3% growth from the same period last year. The company’s operating cash flow for the period also grew to $138 million, from $103 million in the prior-year period.  Though its revenue was up, the company continues to face challenges with volumes, which saw a slight decline of 1%. This drop in volumes mainly occurred due to the company’s strategic choices to discontinue low-margin businesses and sell a small canning business. In addition, its underlying volume and product mix remained flat compared to the first quarter of 2022.

McCormick & Company, Incorporated (NYSE:MKC) saw growth in its revenues mainly because of its pricing actions. However, analysts believe that increasing prices is just a short-term solution to navigate through challenges posed by lower sales volumes. For 2024, the company expects to boost its profit margins with its higher prices strategy. Moreover, it expects sales to range from a decrease of 2% to 0% compared to 2023 or a decrease of 1% to an increase of 1% on a constant currency basis. This growth outlook in a challenging environment could be seen as stable, but it may not be considered exceptional if market conditions are highly competitive.

McCormick & Company, Incorporated (NYSE:MKC) has a forward P/E of 23.36 and its 5-year average P/E is 25.6. The stock achieved its high of $105 per share in mid-2022 but has not returned to that level since. Instead, it fell to as low as $60 per share in late 2023. Analysts have a consensus Hold rating on the stock, which places it on our list of the worst dividend aristocrats to buy now.

McCormick & Company, Incorporated (NYSE:MKC) currently offers a quarterly dividend of $0.42 per share for a dividend yield of 2.48%, as of June 14. The company has been growing its dividends consistently for the past 38 years.

Investment management company Ave Maria highlighted growth prospects for McCormick & Company, Incorporated (NYSE:MKC) in its Q1 2024 investor letter. Here is what the firm has to say:

“McCormick & Company, Incorporated (NYSE:MKC) manufactures and distributes spices and other flavor products to the food industry. This seemingly mundane business achieves extraordinary returns on capital as the spices and seasoning category tends toward a single dominant supplier which can simplify the complex inventory requirements of its customers. Over the coming years, McCormick should benefit from increasing demand for diverse cuisines, the trend towards cooking from scratch, and the younger consumers’ preference for heat via its Cholula hot sauce products.”

McCormick & Company, Incorporated (NYSE:MKC) was a part of 27 hedge fund portfolios at the end of Q1 2023, down from 38 in the preceding quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a collective value of more than $1.4 billion.

Overall MKC ranks 14th on our list of the worst dividend aristocrat stocks to buy. You can visit 20 Worst Dividend Aristocrat Stocks According to Analysts to see the other dividend aristocrat stocks that are on hedge funds’ radar. While we acknowledge the potential of MKC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as MKC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.