V.F. Corporation: Dividend Stock Analysis

 |  About: V.F. Corporation (VFC)
by: Dividend Growth Investor

V.F. Corporation (NYSE:VFC) designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. This dividend champion has paid dividends since 1941, and has been able to boost them for 40 years in a row.

The company's last dividend increase was in October 2012 when the Board of Directors approved a 20.80% increase to 87 cents/share. The company's peer group includes Coach (NYSE:COH), Ralph Lauren (NYSE:RL) and PVH Corp (NYSE:PVH).

Over the past decade, this dividend growth stock has delivered an annualized total return of 18.70% to its shareholders.

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The company has managed to deliver a 10.50% average increase in annual EPS since 2002. Analysts expect V.F. Corporation to earn $9.54 per share in 2012 and $10.99 per share in 2013. In comparison, the company earned $7.98/share in 2011.

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The company has transformed itself into a designer and marketer of casual lifestyle brands for the U.S. population. The company focuses on its Outdoor & Action sports, Sportswear and Contemporary brands lifestyle businesses. These businesses are projected to reach 60% of sales by 2015. In 2011, the company outlined in its strategy the goal to generate $5 billion in additional sales and $5 in additional earnings per share by 2015, from 2010 levels. Over the near term, profits are going to come from increasing profit margins as denim costs decrease. Another growth factor could be expansion into international markets, as well as strategic shifting of focus to more profitable brands. The company expects to grow international sales by 15%/year, until they reach 40% of total sales. The company has a history of making acquisitions work, as evidenced by the acquisition of Vans and North Face in the early 2000s. Increasingly, I see many people wearing jackets with the "North Face" logo, either at work or in the streets. The firm acquired Timberland in late 2011 for $2.30 billion. The deal for Timberland brand is expected to be accretive to earnings almost immediately.

Another factor that could contribute to revenue growth is an increase in the direct to consumer channels of sales. This will be achieved by increasing the number of retail stores in the U.S. and Internationally as well as through online sales.

The return on equity has decreased from 22% in 2002 to 12.50% by 2009. Since then, it has increased back up to 21.20% in 2011. I generally want to see at least a stable return on equity over time.

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The annual dividend payment has increased by 10.90% per year over the past decade, which is lower than the growth in EPS.

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An 11% growth in distributions translates into the dividend payment doubling every six and a half years on average. If we look at historical data, going as far back as 1988, one would notice that the company has actually managed to double distributions every eight years on average.

The dividend payout ratio has increased from 30% in 2002 to 57% in 2009, before decreasing to 33% by 2011. A lower payout is always a plus, since it leaves room for consistent dividend growth, minimizing the impact of short-term fluctuations in earnings.

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Currently V.F. Corporation is attractively valued at 16.50 times earnings and has a sustainable distribution. However, given the low yield of 2.30%, I would consider initiating a position in the stock on dips below $140.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in VFC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.