Brown-Forman Co. (BF.B, BF.A) is the largest American owned alcoholic beverage producer in the world. They own 36 brands that operate in the champagne, liqueur, tequila, vodka, whiskey and wine segments of the industry.
Goldman Sachs has lowered this stock to a "sell" after they see evidence that de-stocking and a tough year-over-year comparison will contribute to a Q2 EPS miss. They see the stock settling down from the $69 it is trading at to $65. They also state that they do not see any long-term fundamental issues; the company has two short-term issues that it had to deal with during the second quarter--the de-stocking and year of year comparison. While that may be true, it is a mistake to sell now if you are a long-term income investor. Don't get me wrong; there is short term risk. If Brown-Forman misses its second quarter earnings the stock price will suffer. But the rewards will be there for investors who have the time and the stomach to wait out a bad quarter or two and let this company do what it does best, crank out dividends.
This company has good fundamentals, brands that are known throughout the world (Jack Daniel's), and it is attracting new types of consumers to its whiskeys that experiment with flavorings. In fact, if there is a long term risk with Brown-Forman it is that investor expectations are too high because of the new customers the flavored whiskeys are attracting.
On the plus side Brown-Foreman is on the S&P list of Dividend Aristocrats and of particular note to income investors: they just increased its quarterly dividend by 9.3%, and issued a special cash dividend of $4.00 payable in the next couple of weeks.
This is also one of the few stocks that outperform the market when recession hits. With the fiscal cliff approaching that is an important thing to keep in mind when deciding if this stock has a place in your portfolio.
To emphasize how much BF.B outperforms the market let's take Brown-Forman's results compared to the S&P during the great recession of 2008-2010. BF.B's price increased more than 25% of what the S&P did in that time period.
Let's also take a look at BF.B's key numbers and ratios that are important to long term investors looking for a stream of income.
Brown-Forman stock was trading at $69.11 at the time this article was written (Tuesday, December 4, 2012). On November 15th the company raised its dividend from $0.2333 a share per quarter to $0.255. That is a 9.3% increase and a 1.40% yield.
It also announced it is issuing a special cash dividend of $4.00 with an Ex-Dividend date of 12-10-12.
Several key ratios for Brown-Forman that are of interest to long term/income investors:
|Brown-Forman Co. Key Ratios|
|Return on Assets||14.12%|
|Operating Cash Flow||539.60M|
|Levered Free Cash Flow||410.26M|
When considering BF.B as a long-term income producing stock I would not place too much concern on the short-term prospects of missing the Q2 numbers and focus on the fundamentals that produce a good long-term income producing stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.