Brown-Forman Stock Draws Cheers From Dividend Investors
Why I Like Brown-Forman Stock for the Long Haul
Last year, when whiskey stocks plunged on worries that a global trade war would rock sales, I vowed to stick by Brown-Forman Corporation (NYSE:BF.A, NYSE:BF.B).
I’m glad I did.
Giving into fear rarely makes for smart investment decisions. And while the company faces a number of challenges—Europe continues to charge tariffs on U.S.-made liquors—the rebound in Brown-Forman stock highlights why I believe in buy-and-hold dividend investing.
Since bottoming out at $45.00 last January, Brown-Forman stock has delivered a total return, including dividends, of 41%. On October 16, the stock closed within striking distance of a fresh all-time high. Yet despite the recent run, I continue to keep this company in the model portfolio in Automated Income, my paid monthly advisory.
Admittedly, Brown-Forman remains collateral damage amid a global trade conflict. Last quarter, management reported flat year-over-year sales growth. Gross margins dropped 330 basis points to 65%. Earnings per share came in at $0.39, down 17% from the same period in 2018. (Source: “Brown-Forman Reports First Quarter Results; Reaffirms Full Year Growth Outlook for Fiscal 2020,” Brown-Forman Corporation, August 28, 2019.)
Not the type of numbers you’d expect to see from a charter member of the S&P 500 Dividend Aristocrats.
But closer to home, Brown-Forman continues to deliver respectable results. Management has capitalized on the strength of the company’s flagship “Jack Daniel’s” brand to enter into the flavored whiskey segment, launching new products like “Tennessee Honey” and “Tennessee Fire.”
The company has also entered the super-premium category with the rollout of the “Single Barrel” collection. This has attracted new customers and driven volume growth stateside.
Other products have padded the bottom line, too. New brands have allowed the company to grow its presence into other categories, including bourbon (“Woodford Reserve”), Irish whiskey (“Slane”), single-malt scotch (“BenRiach”), and tequila (“el Jimador”).
Brown-Forman purchased The 86 Company in June, providing a toe-hold into the fast-growing gin category. (Source: “Brown-Forman buys Fords Gin,” The Spirits Business, June 11, 2019.)
These efforts have paid off for investors, though you have to dig into the company’s financial results for proof.
Last quarter, tequila revenue jumped 12% year-over-year. The launch of “Tennessee Apple” in October contributed to a 16% bump in premium bourbon sales. After adjusting for advance orders made ahead of the European tariffs, revenues actually grew in the mid-single-digits.
This means the company is on pace to achieve at least the low end of management’s full-year guidance of sales growth between five and seven percent. (Source: Brown-Forman Corporation, August 28, 2019, op. cit.)
Several catalysts could put Brown-Forman shares back in Wall Street’s good books. An end to trade hostilities, for instance, would provide a quick sales bump for exporters like Brown-Forman. More acquisitions, assuming executives don’t overpay, would also boost profits.
Chart courtesy of StockCharts.com
In the meantime, investors will get paid while they wait. Today, Brown-Forman stock pays a quarterly dividend of almost $0.17 per share. That comes out to an annual yield of 1.1%. Management supplements this payout further through stock buybacks, which raises the total shareholder yield to two percent. (Source: “Dividend History,” Brown-Forman Corporation, last accessed October 17, 2019.)
That distribution will likely grow. For decades, Brown-Forman has announced a dividend hike to shareholders at the end of each year. If executives follow through on that tradition, it would represent a huge vote of confidence in the business. And more importantly, it could provide another catalyst for Brown-Forman stock.
Dividend investors can raise a glass to that.