Dividend Aristocrats In Focus: Brown-Forman Corporation

Updated on March 19th, 2024 by Bob Ciura

The Dividend Aristocrats are a group of 68 companies in the S&P 500 Index with 25+ consecutive years of dividend increases.

Within the Dividend Aristocrats, there are varying types of stocks with differing yields. Some of the Dividend Aristocrats have higher yields, but these high-yielders tend to grow their dividends at a lower rate each year.

At the same time, there are Dividend Aristocrats with low yields. While these may look unappealing on the surface, they often provide higher levels of dividend growth from year to year. An example of this is Brown-Forman (BF.B), a Dividend Aristocrat that has increased its dividend for 40 consecutive years.

There are currently 68 Dividend Aristocrats, including Brown-Forman. You can download an Excel spreadsheet of all 68 Dividend Aristocrats (with metrics like dividend yields and price-to-earnings ratios) by clicking the link below:

Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.

Brown-Forman has paid a dividend for 80 years. The company typically provides high dividend increases each year, even during recessions thanks to its defensive business model.

This article will discuss Brown-Forman’s growth prospects, valuation, and outlook.

Business Overview

Jack Daniel’s Tennessee Whiskey got its start all the way back in 1865 when Jack Daniel purchased Cave Spring Hollow. The following year, he registered the Jack Daniel Distillery, which is today America’s oldest registered distillery.

Brown-Forman has a large product portfolio focused on whiskey, vodka, and tequila. Its most famous brand is its flagship, Jack Daniel’s whiskey. Other popular brands include Herradura and el Jimador tequila and Finlandia vodka.

Brown-Forman reported revenues of $1.1 billion for its third quarter (fiscal 2024) earnings results. The company’s revenues were down by 1% year-over-year and came in below the analyst consensus. The sales performance during the quarter was also weaker compared to the previous quarter. In constant currencies, Brown-Forman experienced a revenue decline of 2% compared to the previous year’s quarter.

The company was able to grow its gross profit by 5% so far this year, despite revenues being up by just 1% on a year-to-date basis. Thanks to operating leverage and tight cost controls, operating profit rose by 25% year-to-date, with earnings-per-share jumping up by 32%.

Growth Prospects

Brown-Forman has a strong growth track record; the company even increased its earnings-per-share during the last financial crisis, as demand for alcohol is not especially cyclical. Historical earnings-per-share were driven by a combination of several factors, including revenue growth, rising margins, and the impact of a declining share count.

Because Brown-Forman owns strong brands and is active in the super and ultra-premium alcoholic beverages markets, which see consistent market growth, Brown-Forman should be able to keep its revenue growth going forward.

This has been an important growth factor for Brown-Forman in the past. Brown-Forman’s Jack Daniels brand and its American super-premium whiskeys continue to grow around the globe.

Higher overall sales allow for margin increases due to better economies of scale, which makes the company more efficient overall, and positively impacts its net earnings growth rate.

In addition, Brown-Forman has aggressively repurchased shares in the past decade, which adds some additional growth to its bottom line. Going forward, there is plenty of growth potential left as the company further expands its product line inside and outside its flagship Jack Daniels brand.

Furthermore, the company will purchase growth through acquisitions, for example, its recent purchase of the Diplomático Rum brand. This purchase launched Brown-Forman into the growing super-premium+ rum category. Diplomático Rum is a super-premium rum from Venezuela and is distributed in over 100 countries.

We are forecasting 8% annual earnings-per-share growth over the next five years.

Competitive Advantages & Recession Performance

Brown-Forman has many competitive advantages. Its famous brands yield significant pricing power. And it has a highly profitable business, with low manufacturing and distribution costs, because of its global scale. These qualities help Brown-Forman generate consistently high returns on invested capital.

Brown-Forman is also very resistant to recessions. This is typical among alcohol stocks, as their products tend to be consumed in greater volume when economic times are tough. One could argue that alcohol manufacturers actually perform well during recessions.

Brown-Forman’s earnings-per-share through the Great Recession are shown below:

2007 earnings-per-share of $0.76
2008 earnings-per-share of $0.77 (1.3% increase)
2009 earnings-per-share of $0.82 (6.5% increase)
2010 earnings-per-share of $0.95 (15.9% increase)

As you can see, the company grew its earnings-per-share every year through the Great Recession. This is a rare accomplishment that demonstrates the company’s defensive business model.

Put simply, spirits manufacturers such as Brown-Forman are among the most recession-resistant businesses.

Valuation & Expected Returns

Based on our estimate for 2024 earnings-per-share of $2 and a current share price near $52, shares of Brown-Forman are currently trading at a P/E ratio of 26.

This is a high multiple, even considering the strength of Brown-Forman’s business. We estimate a fair value P/E ratio of 24.

If shares were to revert to 24 times earnings, this implies the potential for a -1.6% valuation headwind over the next five years. On this basis, the valuation appears stretched, even by Brown-Forman’s lofty standards.

A strong earnings growth rate of 8% and the 1.7% dividend yield will help boost shareholder returns. Overall, we estimate annual returns of 8.1% over the next five years.

Final Thoughts

Brown-Forman has a dominant position in its core product categories. Its flagship Jack Daniel’s brand, should continue to lead the whiskey industry, with high growth from its smaller whiskey brands and tequilas. The emerging markets are also an appealing growth catalyst, and of course, the dividend growth streak is enviable.

Brown-Forman is a good example of a great business trading at an exceptionally high valuation. Despite a solid dividend and very strong business, shares do not look particularly compelling for purchase right now.

Related: My Top 10 Buy & Hold Forever Stocks.

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