I have never bought the attractiveness of the S&P 500 (SPY) as my primary stake, as I prefer to invest in companies that generate more significant revenue. Despite the recent fall, the S&P 500 still stands gives an insignificant 1.5%. This means that even if a retiree accumulated a respectable retirement balance of $ 2 million, he would only receive $ 30,000 a year from the index fund. It is barely enough for the daily living expenses in today’s world.
This brings me to VF Corporation (NYSE: VFC), who is an S&P dividend aristocrat who now trades at prices previously unimaginable. This article highlights what makes VFC a quality revenue buy right now, so let’s get started.
VF Corp. is a world leader in branded clothing, footwear and lifestyle accessories with 40,000 employees worldwide and annual sales of $ 11.8 million. VFC’s product offering covers a variety of channels, including retail, wholesale, and e-commerce. The company’s portfolio of iconic lifestyle brands includes Vans, The North Face and Timberland, which combine to achieve 80% of its sales.
Despite a difficult operating environment, VFC was able to dispel some doubts, with revenues rising 9% year-on-year (up 12% in constant currency) to $ 12.8 billion in its fourth fiscal quarter (ending on April 2, 2022). This was driven by the encouraging results of VFC’s The North Face brand (27% of total sales), which experienced impressive 24% (26% in constant currency) sales growth during the quarter and growth in sales. sales of 32% for the full fiscal year 2022. In particular, The North Face’s gross margin is now above pre-pandemic levels thanks to positive operating leverage.
In addition, VFC is showing strong margins thanks to strong pricing power, with a tight operating margin that increased 510 basis points to 13.1% for the full fiscal year 2022. As shown below , VFC obtains an A-rating for profitability with a net income margin of 11.7%, well above the sector median of 6.7%.
VFC is also notable for its shareholder returns, having returned $ 1.1 million to shareholders in fiscal year 22 alone, through $ 773 million in cash dividends and $ 350 million in repurchased shares. VFC is well on its way to becoming a king of dividends after raising its dividend for 48 consecutive years. The recent weakness in prices has pushed the yield to 4.2%, and the dividend comes with a secure payout ratio of 64%, while maintaining an A-rated balance sheet. As shown below, VFC’s dividend yield now it is nearing its highest level in more than a decade.
The risks of the thesis include the potential for a recession, which could lead to a decline in consumer spending. In addition, the weakness of consumer spending in China due to the shutdown there may remain in the current quarter. This was reflected in the fall in sales of Vans in the region during the last quarter.
Looking to the future, management seems confident for fiscal year 23, as it is geared toward a steady $ 7% increase in revenue, driven primarily by its larger brands and emerging brands such as Icebreaker, which generate record revenue in fiscal year 22, and Smartwool. which last year increased sales by 40%. VFC is also adapting to changing consumer preferences with its omnichannel strategy, as described during the recent conference:
We continue to invest in improving the omnichannel consumer experience by adding intelligence to the way we collect, connect, manage, and govern multichannel consumer profiles that provide dynamic segmentation capabilities that serve all direct consumer channels and marketing solutions. brands.
This has allowed us to deliver a truly seamless omnichannel experience, enabling brands to make stronger connections and customize the way we communicate with our consumers, which in turn increases satisfaction, engagement, and conversion. Our click for US delivery has improved even more in just over 2 business days. Investing in our transformation will continue to be a key strategic priority as we look to the future.
I see that VFC is now trading in deep value territory at the current price of $ 47.32 with a forward PE of only 13.9, well below its normal PE of 22.2 over the last decade. Sales-side analysts have a consensus purchase rating with an average target price of $ 59, and Morningstar has a fair value estimate of $ 68, implying a potential total one-year return of 29 to 48%.
VFC is a high quality company that is well positioned in the long run. It has solid brands, a diversified portfolio and a solid balance sheet. It is also returning cash to shareholders through dividends and share repurchases, and is on track to become a king of dividends. The recent sale provides an attractive entry point for long-term value investors.