Dividend Aristocrats In Focus: Brown-Forman Corporation

Up to date on March nineteenth, 2024 by Bob Ciura

The Dividend Aristocrats are a gaggle of 68 corporations within the S&P 500 Index with 25+ consecutive years of dividend will increase.

Inside the Dividend Aristocrats, there are various forms of shares with differing yields. A number of the Dividend Aristocrats have larger yields, however these high-yielders are likely 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 development from yr to yr. An instance of that is Brown-Forman (BF.B), a Dividend Aristocrat that has elevated its dividend for 40 consecutive years.

There are at the moment 68 Dividend Aristocrats, together with Brown-Forman. You may obtain an Excel spreadsheet of all 68 Dividend Aristocrats (with metrics like dividend yields and price-to-earnings ratios) by clicking the hyperlink under:

Disclaimer: Certain Dividend just isn’t affiliated with S&P International in any approach. S&P International owns and maintains The Dividend Aristocrats Index. The knowledge on this article and downloadable spreadsheet is predicated on Certain Dividend’s personal assessment, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s primarily based. Not one of the data on this article or spreadsheet is official information from S&P International. Seek the advice of S&P International for official data.

Brown-Forman has paid a dividend for 80 years. The corporate sometimes supplies excessive dividend will increase every year, even throughout recessions because of its defensive enterprise mannequin.

This text will focus on Brown-Forman’s development prospects, valuation, and outlook.

Enterprise Overview

Jack Daniel’s Tennessee Whiskey bought its begin all the way in which again in 1865 when Jack Daniel bought Cave Spring Hole. The next yr, he registered the Jack Daniel Distillery, which is right this moment America’s oldest registered distillery.

Brown-Forman has a big product portfolio targeted on whiskey, vodka, and tequila. Its most well-known model is its flagship, Jack Daniel’s whiskey. Different widespread manufacturers embrace Herradura and el Jimador tequila and Finlandia vodka.

Brown-Forman reported revenues of $1.1 billion for its third quarter (fiscal 2024) earnings outcomes. The corporate’s revenues have been down by 1% year-over-year and got here in under the analyst consensus. The gross sales efficiency through the quarter was additionally weaker in comparison with the earlier quarter. In fixed currencies, Brown-Forman skilled a income decline of two% in comparison with the earlier yr’s quarter.

The corporate was capable of develop its gross revenue by 5% up to now this yr, regardless of revenues being up by simply 1% on a year-to-date foundation. Due to working leverage and tight value controls, working revenue rose by 25% year-to-date, with earnings-per-share leaping up by 32%.

Progress Prospects

Brown-Forman has a powerful development observe document; the corporate even elevated its earnings-per-share over the past monetary disaster, as demand for alcohol just isn’t particularly cyclical. Historic earnings-per-share have been pushed by a mix of a number of elements, together with income development, rising margins, and the impression of a declining share rely.

As a result of Brown-Forman owns robust manufacturers and is energetic within the tremendous and ultra-premium alcoholic drinks markets, which see constant market development, Brown-Forman ought to have the ability to preserve its income development going ahead.

This has been an essential development issue for Brown-Forman prior to now. Brown-Forman’s Jack Daniels model and its American super-premium whiskeys proceed to develop across the globe.

Greater total gross sales enable for margin will increase attributable to higher economies of scale, which makes the corporate extra environment friendly total, and positively impacts its internet earnings development charge.

As well as, Brown-Forman has aggressively repurchased shares prior to now decade, which provides some extra development to its backside line. Going ahead, there may be loads of development potential left as the corporate additional expands its product line inside and out of doors its flagship Jack Daniels model.

Moreover, the corporate will buy development by acquisitions, for instance, its current buy of the Diplomático Rum model. This buy launched Brown-Forman into the rising super-premium+ rum class. Diplomático Rum is a super-premium rum from Venezuela and is distributed in over 100 international locations.

We’re forecasting 8% annual earnings-per-share development over the following 5 years.

Aggressive Benefits & Recession Efficiency

Brown-Forman has many aggressive benefits. Its well-known manufacturers yield important pricing energy. And it has a extremely worthwhile enterprise, with low manufacturing and distribution prices, due to its international scale. These qualities assist Brown-Forman generate constantly 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 occasions are powerful. One might argue that alcohol producers really carry out effectively throughout recessions.

Brown-Forman’s earnings-per-share by the Nice Recession are proven under:

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’ll be able to 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 comparable to Brown-Forman are among the many most recession-resistant companies.

Valuation & Anticipated Returns

Primarily based on our estimate for 2024 earnings-per-share of $2 and a present share worth close to $52, shares of Brown-Forman are at the moment buying and selling at a P/E ratio of 26.

This can be a excessive a number of, even contemplating the energy of Brown-Forman’s enterprise. We estimate a good worth P/E ratio of 24.

If shares have been to revert to 24 occasions earnings, this means the potential for a -1.6% valuation headwind over the following 5 years. On this foundation, the valuation seems stretched, even by Brown-Forman’s lofty requirements.

A powerful earnings development charge of 8% and the 1.7% dividend yield will assist increase shareholder returns. General, we estimate annual returns of 8.1% over the following 5 years.

Closing Ideas

Brown-Forman has a dominant place in its core product classes. Its flagship Jack Daniel’s model, ought to proceed to steer the whiskey business, with excessive development from its smaller whiskey manufacturers and tequilas. The rising markets are additionally an interesting development catalyst, and naturally, the dividend development streak is enviable.

Brown-Forman is an efficient instance of an ideal enterprise buying and selling at an exceptionally excessive valuation. Regardless of a strong dividend and really robust enterprise, shares don’t look significantly compelling for buy proper now.

Associated: My High 10 Purchase & Maintain Endlessly Shares.

Moreover, the next Certain Dividend databases include essentially the most dependable dividend growers in our funding universe:

In the event you’re searching for shares with distinctive dividend traits, take into account the next Certain Dividend databases:

The main home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: