Up to date on March nineteenth, 2021 by Bob Ciura
The Dividend Aristocrats are a bunch of 65 corporations within the S&P 500 Index, with 25+ consecutive years of dividend will increase.
Inside the Dividend Aristocrats, there are various sorts of shares with differing yields. A few of the Dividend Aristocrats have larger yields, however these high-yielders are inclined to develop their dividends at a decrease charge every year.
On the identical time, there are Dividend Aristocrats with low yields. Whereas these might look unappealing on the floor, they typically present larger ranges of dividend progress from 12 months to 12 months. An instance of that is Brown-Forman (BF.B), a Dividend Aristocrat that has elevated its dividend for 37 consecutive years.
There are at the moment 65 Dividend Aristocrats, together with Brown-Forman. You’ll be able to obtain an Excel spreadsheet of all 65 Dividend Aristocrats (with metrics like dividend yields and price-to-earnings ratios) by clicking the hyperlink beneath:
Brown-Forman has paid a dividend for 76 years, and it has traditionally elevated its dividend at a excessive charge. Over the previous 10 years, the corporate has elevated its dividend at a compound annual progress charge of ~9%.
Its dividend enhance final 12 months was simply 3%, because of the general financial uncertainty due to the coronavirus pandemic. However assuming the worldwide economic system continues to get better, buyers can anticipate Brown-Forman’s dividend progress to speed up as properly. This text will talk about Brown-Forman’s enterprise mannequin, progress prospects, and valuation.
Jack Daniel’s Tennessee Whiskey received its begin all the way in which again in 1865, when Jack Daniel bought Cave Spring Hole. The next 12 months, he registered the Jack Daniel Distillery, which stands right now as America’s oldest registered distillery.
Brown-Forman has a big product portfolio, which is concentrated on whiskey, vodka, and tequila. Its most well-known model is its flagship Jack Daniel’s whiskey. Different fashionable manufacturers embrace Herradura and el Jimador tequila, and Finlandia vodka.
Supply: Investor Presentation
Brown-Forman reported its third quarter (fiscal 2021) earnings outcomes on March 4. The corporate introduced that it generated revenues of $910 million within the interval, which was up 1.3% from the revenues the corporate generated in the course of the earlier 12 months’s quarter. Brown-Forman’s revenues got here in forward of the analyst consensus, beating it by $9 million.
Gross sales had been negatively impacted by forex charge headwinds, which is why it ought to be famous that underlying internet gross sales, or natural gross sales, had been up greater than 1% in the course of the quarter, and up 2% to date throughout this fiscal 12 months. Brown-Forman’s earnings-per-share totaled $0.45 in the course of the third quarter, which was barely above the consensus analyst estimate, beating the consensus by $0.02. The quarter’s income had been down year-over-year, declining by 5% in comparison with the earlier 12 months’s quarter.
The financial downturn introduced on by the coronavirus pandemic weighed on Brown-Forman final 12 months. However over the long-term, Brown-Forman ought to proceed to profit from its main model portfolio, with progress in new merchandise and geographic markets.
Brown-Forman has a robust progress monitor report; the corporate was even in a position to enhance its earnings-per-share over the past monetary disaster, as demand for alcohol shouldn’t be particularly cyclical. Throughout the 2010 to 2020 time-frame, Brown-Forman grew its earnings-per-share by a 7% common compound charge. Earnings-per-share had been pushed by a mix of a number of elements, together with income progress, rising margins, and the influence of a declining share depend.
Because of the truth that Brown-Forman owns robust manufacturers and is lively within the tremendous and ultra-premium alcoholic drinks markets, which see constant market progress, Brown-Forman ought to be capable to hold its income rising going ahead.
This has been an necessary progress issue for Brown-Forman previously. Brown-Forman’s Jack Daniels model, in addition to its American super-premium whiskeys, proceed to develop across the globe.
Worldwide operations had been the principle progress driver for currency-adjusted gross sales over the past couple of quarters and can seemingly stay an necessary progress issue going ahead.
Increased general gross sales permit for margin will increase resulting from higher economies of scale, which makes the corporate extra environment friendly general, and positively impacts its internet earnings progress charge.
As well as, Brown-Forman has aggressively repurchased shares previously decade, which provides some extra progress to its backside line. Going ahead, there may be loads of progress potential left, as the corporate additional expands its product line, each inside and out of doors of its flagship Jack Daniels model. We’re forecasting 7% annual earnings-per-share progress over the following 5 years.
Aggressive Benefits & Recession Efficiency
Brown-Forman has many aggressive benefits. Its fashionable manufacturers yield vital pricing energy. And, it has a extremely worthwhile enterprise, with low manufacturing and distribution prices due to its world scale. These qualities assist Brown-Forman generate persistently excessive returns on invested capital.
Brown-Forman can also be very proof against recessions. That is typical amongst alcohol shares, as their merchandise are usually consumed in better quantity when financial instances are powerful. One may argue that alcohol producers truly carry out properly throughout recessions.
Brown-Forman’s earnings-per-share by the Nice Recession are proven beneath:
- 2007 earnings-per-share of $0.76
- 2008 earnings-per-share of $0.77 (1.3% enhance)
- 2009 earnings-per-share of $0.82 (6.5% enhance)
- 2010 earnings-per-share of $0.95 (15.9% enhance)
As you may see, the corporate grew its earnings-per-share yearly by the Nice Recession. This can be a uncommon accomplishment that demonstrates the corporate’s defensive enterprise mannequin. Put merely, spirits producers similar to Brown-Forman are among the many most recession-resistant companies.
Valuation & Anticipated Returns
Based mostly on our estimate for 2021 earnings-per-share ($1.75), and a present share worth close to $69, shares of Brown-Forman are at the moment buying and selling at P/E ratio of 39.5.
This can be a very excessive a number of, even considering the energy of Brown-Forman’s enterprise. We estimate a good worth P/E ratio of 24.
If shares had been to revert to 24 instances earnings, this suggests the potential for a -9.5% valuation headwind over the following 5 years. On this foundation, the valuation seems particularly stretched, even by Brown-Forman’s lofty requirements.
A robust earnings progress charge (7%) and the 1% dividend yield will assist, however a discount within the safety’s valuation to a extra “normalized” degree would successfully wipe out any intermediate-term whole return potential.
Traders ought to be aware that Brown-Forman pays a particular dividend now and again. For instance, Brown-Forman paid a particular dividend of $1.00 per share in 2018. Earlier particular dividends from Brown-Forman had been paid in 2012 and 2010, so it’s not one thing the corporate does yearly.
General, anticipated returns for Brown-Forman are -1.5% per 12 months. A adverse anticipated charge of return makes the inventory a promote.
Brown-Forman has a dominant place in its core product classes. Its flagship Jack Daniel’s model ought to proceed to guide the whiskey trade, with excessive progress from its smaller whiskey manufacturers and tequila. The rising markets are additionally an interesting progress catalyst and naturally the dividend progress streak is enviable.
Brown-Forman is an efficient instance of an awesome enterprise buying and selling at an exceptionally excessive valuation. If shares had been to proceed buying and selling at 30+ instances earnings, whole return potential can be common. Nonetheless, that may be a hypothesis that we aren’t snug making at this juncture. As such, regardless of a strong dividend and really robust enterprise, shares don’t look significantly compelling for buy proper now.
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