2021 Week 46: VF Corp (NYSE: VFC)

Portfolio Update

The FiveTwenty portfolio received $15.47 in dividends in the past week. GD paid its quarterly dividend during the week.

Past Week Dividend	$15.47
Current Quarter Dividend (Q4 2021)	$441.04
LifeTime Dividend	$1,542.37
Estimated Annual Dividend	$3,414.55

The capital allocation for the week of 11/14/2021 to 11/20/2021 will be used to establish a position in VF Corp (NYSE: VFC).

VFC – Company Profile

V.F. Corporation (VFC) is an American apparel and footwear company. The company produces, markets, and distributes its products globally across the Americas, Europe, and Asia-Pacific. Founded in 1899 and headquartered in Denver, Colorado, VFC counts Vans, The North Face, Timberland, Dickies, JanSport, Smartwool, and Supreme amongst its well known brands. Official Site | Wikipedia

Dividend Streak	49 years
Yield	2.56%
Payout Ratio	75.96%* (GAAP 78.13%)
P/E	29.73* (GAAP 24.66)

Financials

Does VFC have the financial means to sustain and raise its dividend going forward?

Analyzing VFC’s financial performance over the last decade is made harder by 2 changes the company made in 2019: the spinoff of the Jeans business as an independent company called Kontoor Brands Inc, and changing its fiscal year to end on the Saturday closes to March 31 from the previously used fiscal year ending on the Saturday closest to December 31.

Between FY 2011 and FY 2019, the company grew revenues from $9.5 billion to $13.8 billion and net income from $888 million to $1.26 billion. (The graph below contains restated earnings for FY 2017 and 2019 to reflect the divestiture of the Jean business during FY 2020). The COVID-19 pandemic impacted the last 2 months of FY 2020 tampering growth for the year. The pandemic then continued to drive a sharp decrease in revenue, net income and EPS for FY 2021.

In the last 10 years, VFC’s adjusted EPS showed a similar trend to revenues. The company experienced rising adjusted EPS between FY 2011 and FY 2019, followed by declines in FY 2020 and FY 2021 due to the COVID-19 pandemic.

The 3-year average dividend per share growth rate median value was 6.90% per year in the past 13 years. (per GuruFocus) In addition, VFC between FY 2012 & FY 20219 the company maintained its payout ratio between 32% and 57%, while at the same time growing the payout from $0.76 to $1.94 per share, an increase of 155%. For FY 2020 and 2021 the decline in EPS due to COVID-19 pushed the payout ratio to 66% and 148%. However, with EPS recovering significantly in FY 2022 (estimated at $3.20 per share) the payout ratio will return to a more reasonable and sustainable 62%.

VFC in 2021 and beyond

Following a tough FY 2021 in which the company saw both its revenue and earnings decline considerably due to the economic slowdown caused by the COVID-19 pandemic, VFC posted much better financial results for the first six months of FY 2022. Revenues increased from $3.685 billion to $5.393 billion, and net earnings grew from $(28.9) million to $788.3 million. Furthermore, for the full fiscal year, VFC expects revenues of around $12.0 billion, which would represent growth of around 30%. Adjusted EPS are expected to be around $3.20 per share.

In addition, the company has continued to adjust it portfolio of brands and products by completing the sale of the Occupational Workwear business on 06/28/2021.

Valuation

Are we paying too much for VFC at the current share price?

In the last 10 years, VFC’s P/E ratio saw a low of 14.25 and a high of 86.42, with a median value of 21.56. (per GuruFocus) The current TTM P/E ratio of 24.66 is slightly above the historical median. The TTM P/E of 29.73 computed on adjusted EPS is higher yet.

The current share price of $76.70 is 7.8% above the 50-day moving average and 2.6% below the 200-day moving average. Additionally, the share price is near the 50th percentile of the 52 week trading range.

Even though, VFC’s share price has recovered from its low caused the COVID-19 crash of 2020 it is still significantly below its pre-pandemic peak. On the other hand, it is hard to get an accurate valuation signal from the P/E. EPS dropped sharply at the height of COVID-19 pandemic and have bounced back in the last quarter.

Yield

How does the current dividend yield for VFC compare to historical values?

In the last 10 years, the dividend yield for VFC has been in a range of 1.49% to 3.89%, with a median of 2.28%. The current TTM yield of 2.56% is above the historical median. The most recent announced quarterly dividend of $0.50 per share puts the MRD yield at 2.61%.

From a yield perspective, we believe VFC provides a good opportunity to establish our initial position.

Thesis

Why are we adding VFC to the FiveTwenty portfolio?

VFC has a long track record of growing its dividend. The company has proven the resiliency of its business by managing to grow its earnings per share throughout the great recession, 2008 to 2010. Furthermore, the strong bounce back of earnings for FY 2022 following the significant impact of the COVID-19 pandemic on FY 2021 results, further demonstrates the business’ resilience.

Therefore, we believe that the collection of strong brands that comprise VFC’s business will allow the company to continue growing and support a growing dividend for years to come.

Additional Research

• 3 High-Yield Dividend Aristocrats To Buy During The September Sell-Off (ENB) | Seeking Alpha
• VFC 2021-08-06 (suredividend.com)
• Dividend Aristocrats In Focus: V.F. Corporation – Sure Dividend

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Photo by Artiom Vallat on Unsplash