In previous articles, I took a look at the best-performing Dividend Aristocrat stocks of 2012 and five stocks that deserved honorable mention. Today, let's examine dividend-paying companies that suffered a rough 2012. Then we'll assess why it was such a turbulent year for them.

Happy to welcome a new year
For entry into the exclusive group, Dividend Aristocrats must boast 20 consecutive years of dividend increases. While all of these companies still met this criterion last year, they comprised the five worst-performing Dividend Aristocrats of 2012. 

Company

2012 Stock Price Return

Dividend Yield

5-Year Dividend Growth Rate

Pitney Bowes (NYSE:PBI)

(43%)

12.7%

2%

McDonald's (NYSE:MCD)

(11%)

3.4%

15%

Consolidated Edison (NYSE:ED)

(8%)

4.3%

1%

Archer Daniels Midland (NYSE:ADM)

(5%)

2.5%

8%

Air Products & Chemicals (NYSE:APD)

(3%)

2.9%

11%

Sources: Yahoo! Finance, The Motley Fool. 

All five companies suffered a lousy year and substantially underperformed the market. With shareholders losing 43%, Pitney Bowes was the worst of the bunch. Fast-food giant McDonald's lost 11%, and utility company Consolidated Edison lost 8%. Meanwhile, industrials stocks Archer Daniels Midland and Air Products & Chemicals gave up 5% and 3%, respectively. By comparison, the S&P 500 gained approximately 12% last year. 

What the heck happened?
Pitney Bowes has failed to effectively adapt to a changing business climate. As consumers increasingly rely on online payment services, the sustainability of Pitney Bowes' business model is being severely challenged. After years of decreasing revenues, the company is struggling to capture more business.

Sluggish economic growth was partly to blame for poor performance at McDonald's and Air Products. Since roughly 70% of McDonald's revenues are derived internationally, slowing growth in Europe and China negatively affected sales, which resulted in McDonald's posting negative same-store sales in October. Meanwhile, industrial gases company Air Products faced rising input costs, especially for helium, in the wake of a global shortage. These input costs, in addition to restructuring costs, have adversely affected earnings. 

Weather-related woes were the culprit for a rough 2012 at Consolidated Edison and Archer Daniels Midland. Con Ed's infrastructure was severely damaged due to Hurricane Sandy. Rebuilding will require large investments, which will be paid for from revenues generated due to rate increases. The utility also faces concerns about its accounting practices and underfunded pension. Meanwhile, Archer Daniels Midland encountered rising input costs due to severe drought conditions. The rising cost of corn has damaged ADM's ethanol business, with margins decreasing considerably.

Bargain hunting
Will these companies continue to misstep in 2013? Or will they turn business around and persevere?

At first glance, all but one of these companies appears fairly valued or undervalued. McDonald's trades in line with the overall market, at a P/E of 17. By comparison, Air Products, Con Ed, and Pitney Bowes trade at 16, 14, and 4, respectively. Value investors may want to take a closer look at these three stocks. Meanwhile, only Archer Daniels Midland trades above the market, with a P/E ratio of 20.

If I were to choose which of these stocks I feel has the most favorable prospects for 2013 and beyond, I'd go with Air Products and McDonald's. Coincidently, both companies boast a five-star rating from our Motley Fools CAPS community

Even though Air Products faces higher input and restructuring costs, the company holds established, long-term contracts with industrial customers.  McDonald's October negative same-store sales figure represents the first it's reported in nearly a decade. McDonald's revamped menu options, remodeled restaurants, and renewed emphasis on brand imaging show promise.

Foolish bottom line
Even though these dividend darlings performed poorly in 2012, don't count them out for 2013. If you're interested in high-dividend-paying stocks, focus on companies that not only possess uninterrupted track records of paying and growing dividends, but also that boast a competitive and sustainable edge.

Nicole Seghetti has no position in any stocks mentioned. You can follow her on Twitter @NicoleSeghetti.  The Motley Fool recommends McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.