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Dividend Aristocrats Part 7 of 52: Brown-Forman Corporation (BF.B)

Brown-Forman Corporation (NYSE:BF.B) manufactures and sells alcoholic beverages globally. The business’ flagship brand is Jack Daniels. However, the company is overlooked by the hedge fund industry. Among over 700 funds in our database, only 20 reported stakes in both class A and class B stock worth $664.95 million in the last round of 13F filings. Among them, Tom Russo‘s Gardner Russo & Gardner and Mario Gabelli’s GAMCO Investors reported positions of 2.72 million class A shares and 844,156 class A shares, respectively.

Brown-Forman also own Sonoma wines, Korbel Champagne, Chambord, Tuaca, Southern Comfort, El Jimador, and Finlandia Vodka.  The image below shows the company’s alcohol brands:


Source:  Brown-Forman Back to School Presentation

Brown-Forman has increased its dividend payments for 31 consecutive years.  The company was founded in 1870 in Kentucky.  Brown-Forman has grown significantly since that time – today it has a market cap of $22.8 billion

The company has stayed true to its roots.  To this day, the Brown family still controls about 70% of the company’s voting shares.

Competitive Advantage

Brown-Forman’s competitive advantage comes from its brands.  The Jack Daniels brand in particular has the strongest recognition.

The company has spent over $400 million a year on advertising in each of its last 3 fiscal years to support its brands.  This comes to around 14% of sales spent on advertising – one of the highest numbers of any Dividend Aristocrat on a revenue percentage basis.

Brown-Forman’s massive advertising spending has caused a global resurgence in whiskey consumption.  Fourth generation Brown family member and current Chairman of the board at Brown-Forman Gavin Brown IV had this to say about the company’s advertising in its 2014 annual report:

“Were it not for Brown-Forman’s focus on American whiskey, and in particular, its home states of Kentucky and Tennessee, I have no doubt that the industry would not be seeing this resurgence.  It just seems difficult to imagine that there would be a global demand for American whiskey had Brown-Forman not painstakingly grown the Jack Daniel’s family of brands.”

The global whiskey market is still growing.  It is expected to grow at 4.5% a year over the next 5 years.  Brown-Forman’s advertising is working well domestically also.  Total Whiskey and Bourbon revenue in the United States rose 9.6% in fiscal 2014.

The company’s Jack Daniels brand is the industry leader.  The Jack Daniels brand in particular is what makes Brown-Forman a steady and reliable Dividend Aristocrat.

Growth Potential & Total Return Analysis

Brown-Forman Corporation (NYSE:BF.B) grew earnings-per-share at a compound rate of 8.4% a year over the last decade.  Dividends grew slightly faster at 9.4% a year.

The company’s earnings growth came from the following sources:

  • Revenue grew at 5.3% a year
  • Share repurchases reduced share count by 1.1% a year
  • Net profit margin increases resulted in earnings growth of 2.1% a year

The primary growth driver for Brown-Forman has been revenue increases.  This is the ideal growth driver for a company – it shows that the company’s products are in increasing demand.

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