Andrew Peller: Under-the-Radar Winemaker

08/11/2015 9:00 am EST


Patrick McKeough

Editor, Successful Investor

Our latest recommendation is a Canadian winemaker that has earned surprisingly little notice from the investment community in spite of the growing popularity of its premium wines in Canada, suggests Patrick McKeough, editor of TSI Network.

Andrew Peller Ltd. (TSX: ADW-A), which opened its first winery in British Columbia in 1961, is now Canada’s second-largest producer of wines.

Its chief wineries include Peller Estates, Trius Winery at Hillebrand, Thirty Bench Wine Makers and Wayne Gretzky Estates in Ontario, and Sandhill, Red Rooster, and Calona Vineyards in British Columbia.

One investing strategy we like is to find stocks that are outside of the limelight of brokers and the media. Few brokers cover Peller due to its relatively small market cap. Even so, it has a long history of rising earnings and dividends.

In its 2015 fiscal year, which ended March 31, 2015, Peller’s sales rose 6.0% to $315.7 million from $297.8 million in 2014.

That’s mainly because it launched several new products, including its skinny-grape spritzers and Panama Jack cocktails. The company also started selling its Wayne Gretzky wines in Western Canada earlier this year.

Earnings gained 12.4% to $15.8 million or $1.13 a share, from $14.0 million or $1.01. Without unusual items, such as gains and losses on foreign-exchange hedging contracts, earnings rose 11.0%.

Meanwhile, the company should continue to benefit from rising demand for higher-priced premium wines.

Peller is also restructuring its home-winemaking division. The lower operating costs resulting from the restructuring should help Peller offset the negative impact of the lower Canadian dollar, which increases the cost of wines it imports from the US and Europe.

Its strong earnings prompted Peller to raise its dividend by 7.1%. The new annual rate of $0.45 a share yields 2.5%. The company has now increased the payout in seven of the past nine years.

With its steadily increasing dividend payout, this under-the-radar winemaker is maturing into one of the best Canadian dividend stocks.

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