Investors often view stocks in the Dow Jones Industrial Average (INDEX: ^DJI) as safe havens, especially in the midst of a steady, growing American economy. All 30 components offer dividends to investors and global exposure to further mitigate their downside risk. However, not all companies experience smooth sailing in calm waters. Putting aside the macroeconomic risks for a moment, let's look at the internal issues facing three major Dow components today.
A lingering pain
The health care giant Johnson & Johnson (NYS: JNJ) provides remedies for all types of ailments, but lately can't seem to find a fix for its recurring headache. Johnson & Johnson's reputation was bruised in recent years as recalls of Tylenol, Motrin, and dozens of other medicines led to lawsuits and consumer backlash.
The problems aren't limited to the company's over-the-counter consumer products. Back in 2010, Johnson & Johnson faced high failure rates for its hip implant devices, resulting in a public relations debacle when the FDA criticized the company for not addressing the issue before 93,000 devices were implanted worldwide.
Johnson & Johnson's new CEO, Alex Gorsky, needs to resuscitate the company, whose share price has been basically flat for five straight years. In the midst of an ongoing investigation into Gorsky's involvement in alleged kickbacks with nursing-home pharmacy Omnicare, don't expect to see J&J's wounds to heal overnight.
A broken record
The story of rogue traders and evaporating profits at banking institutions has become quite stale in recent years, but JPMorgan Chase (NYS: JPM) decided to retell the tale in an English accent this month. The company's chief investment office, home to a now-infamous trader known as the "London Whale," was accountable for some reckless trades that resulted in at least $2 billion in losses the day they were announced. The estimated losses continue to fluctuate, mostly higher, although the bank has begun to liquidate other profitable securities to ease the burden on its second-quarter earnings.
In response to questions about the systematic risks presented by this recent debacle, CEO Jamie Dimon remarked, "Just because we're stupid doesn't mean everybody else was." While many investors, including Warren Buffett, believed JPMorgan emerged with a strong footing following the financial crisis, recent developments have stirred the waters and sent the bank's stock price down over 20%.
Greasing the palms
Much like diversified giant Johnson & Johnson, Wal-Mart's (NYS: WMT) stock price has left investors with little to cheer about in recent years. Now they have something to jeer about, though. The New York Times recently publicized a major bribery scandal at Wal-Mart's Mexico operations that caught the retail world by surprise. At this point, the allegations are being investigated by the Department of Justice and the SEC, but all signs point to some type of inappropriate activity taking place across Wal-Mart de Mexico, one of the retailer's most critical international operations. A paper trail found within the company's Mexico operations indicated $24 million could be related to bribes and kickbacks, but investors should watch closely to see if this unravels into a widespread international issue.
The recent developments at these blue chip companies will present serious obstacles for management teams as they try to limit damage to their brands, revamp internal controls, and at the same time grow their businesses. Shareholder scrutiny will increase, and with good reason. Perhaps it would be wise to look elsewhere for dividend-paying stocks, at least until the dust settles. For ideas to boost your portfolio with dividends, start with our special free report, "Secure Your Future With 9 Rock-Solid Dividend Stocks." It's available for a limited time, so download your copy here.
At the time thisarticle was published Fool contributor Isaac Pino does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares of JPMorgan Chase and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, as well as creating a diagonal call positions in Johnson & Johnson and Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.