Brown-Forman Dividend Stock Analysis

Company Overview

Brown Forman (NYSE BF-B or BF-A) was founded in 1870. Brown-Forman Corporation is a producer and marketer of fine quality beverage alcohol brands, including Jack Daniel's, Southern Comfort, Finlandia, Canadian Mist, Fetzer, Korbel, Gentleman Jack, el Jimador, Tequila Herradura, Sonoma-Cutrer, Chambord, Tuaca, Woodford Reserve, and Bonterra. We globally market and sell various categories of beverage alcohol products, such as Tennessee, Canadian, and Kentucky whiskies; Kentucky bourbons; California sparkling wine; tequila; table wine; liqueurs; vodka; and ready-to-drink products.

BF-B employees about 3,900 people, with 41% of them based outside the US.  The companys portfolio currently holds 35 brands, 5 in the top 100 premium spirits list.  These are sold in 135 countries worldwide, and they expect to see large growth from the emerging BRIC countries. 

The Brown family still owns a large chunk of the company and runs it.  The are also #63 on Newsweeks “America’s top 500 Green Companies” list. 

Financial Analysis

* Brown Forman trades two classes of stock, A and B.  For this article we will be focusing on Class B shares, since class A shares are rarely traded and mostly held by the Brown Family.

Dividends

BF-B is a recent addition to the SP Dividend Aristocrats list.  They have paid a dividend every year for the past 64 years, and have increased their dividend for the past 26 years. 

The stock currently yields 1.97%

Dividend Growth	CAGR
10 year	9.67%
5 year	8.87%
1 year	5.36%

Current Payout Ratio is (EPS) 40% and (Cash) 38.31%

Payout Ratios	10 yr Avg.
EPS	39%
Cash	38.31%

Conclusion

The dividend is stable, has a strong history of increases, and is well covered by cash.  However, the growth rate has been slowing over time, and is below the double digit growth I really like to see.  The yield is also below my 3% entry criteria.

Income Statement

Revenue Growth	CAGR
10 year	4.33%
5 year	7.54%
1 year	1.07%

EPS Growth	CAGR
10 year	10.99%
5 year	4.22%
1 year	5.23%

BF-B has bought back shares at an average of 3.51% a year over 10 years

Margins	10 yr Avg.
Gross	51.50%
Net	12.57%

Conclusion

Revenue has been increasing over the years, as has EPS.  I don’t always put to much weight on these figures, since revenue can be recorded before any money is actually received, and EPS can be manipulated by stock buybacks and revenues that have not been realized yet. 

Margins however are good, and an average 12.57% net margin is respectable. 

Balance Sheet

Balance Sheet Ratios	10 yr Avg.
Current Ratio	2.11
Lg T Debt / Equity	0.29
Tot Debt / Equity	0.45
Debt / Total Capital	0.29
Cash Return / Tot Capital	14.39%

Balance sheet is strong.  Good current ratio, debt is low and they have provided a good cash return on the capital they employ.

Cash Flow

Free Cash Flow	CAGR
10 year	15.67%
5 year	15.02%
1year	15.61%

FCF Per Share	CAGR
10 year	17.50%
5 year	16.10%
1 year	17.79%

Stock Price

Current Price	59.97
P/E	19.9
Est Forward P/E	18.57
P / Cash Flow	17.43
Div Yield	1.97%
Int. Value	43.07
2011 Int. Value	47.08
Target Price	40

	10 yr Avg.	5 yr Avg.
High P/E	41.48	26.82
Low P/E	27.53	18.27
High Yield	1.69%	2.20%
Low Yield	1.08%	1.43%

Qualitative Analysis and Conclusion

BF is a strong company, with many strong brands.  As someone who is a frequent patron to many bars in the USA, I have never been to one that does not carry Jack Daniels, their flagship brand.  Jack and Coke is a very common drink, and Jack Daniels can be found in many pop culture references.  The bottle is distinct, and everyone can pick it out of a crowd. 

As someone who has worked in the hospitality industry, including bartending, I’ve seen many of the brands the company owns and they are pretty common.  This includes Chambord, and popular mixer in drinks, Finlandia Vodka, and Sonoma Cutrer wines.  I like their brand portfolio. 

The company has it’s hand in many countries, and as many emerging markets create a large, brand conscious drinking middle class, if they position themselves well they should see strong sales and growth.  I like it’s international propsects, and the fact it is using it’s money to buy brands with good international brand loyalty, like El Jimandor Tequila.

The balance sheet is strong, and the company throws off plenty of cash to cover an increasing dividend. 

However, the company is not in my buy range right now.  In order to reach the p/e and yield I look for, it would have to drop into the low 40’s.  I will not be initiating a position right now, but will keep an eye on the stock for dips.