V.F. Corporation (VFC) is an apparel, footwear, and accessories company that was founded in 1899. V.F. has built a highly desirable portfolio of consumer-facing brands, explains Josh Arnold, contributing editor to Sure Retirement Newsletter.
Its brands span the full spectrum of price points in a variety of categories and include Vans, Supreme, JanSport, Dickies, Timberland, and more. Through these brands, V.F. sells a wide assortment of activewear, work apparel, luggage and backpacks, and more through its global distribution network.
V.F. shares have had a very rough 2022 and the stock has a market cap of just over $10 billion. V.F. is also a Dividend King, having raised its payout for 50 consecutive years, putting it in elite company on that measure. We see 10% earnings-per-share growth annually looking forward, which is one reason why V.F. is my top dividend stock pick for 2023.
The company’s shares have declined at least in part this year due to the fear of a recession, which generally leads to slower consumer spending. However, V.F. has stood the test of time and weathered many recessions in past decades. It is my belief that V.F. will come out of this recession as strong as ever, as it generally has in the past.
The stock is yielding an incredible 7.7% today, which is not only extremely high by any measure, but especially considering the company is a Dividend King. There have been very few times when an investor could own a stock with such a favorable combination of yield and dividend longevity. V.F. has generally yielded between 2% and 3% for the past decade, so its yield today is extraordinary.
One caveat is that the payout ratio for this year is likely to be around 100%, as the company’s earnings have fallen on higher inventory levels, slower consumer spending, and promotional activity. However, these characteristics have always proven transitory in past recessions, and I see this year as the trough for earnings.
In addition, management is highly likely to defend the dividend through means other than earnings — if that becomes necessary — in order to keep the dividend increase streak alive. Given these factors, I do not believe a dividend cut is on the horizon, despite the high current payout ratio.
V.F. Corp’s valuation is also extremely attractive, as shares trade for just over 13 times this year’s earnings estimate. Shares have generally traded in excess of 20 times earnings in recent years, and we see fair value at 19 times earnings. That implies the possibility of a 7%+ tailwind to total returns to shareholders from the valuation alone, as the stock should trade closer to fair value once recession fears have passed.
Overall, we believe V.F. Corp could offer total returns of around 22% annually to shareholders, and given its unique combination of current yield, low valuation, and dividend longevity, it is my top dividend stock pick for 2023.
