This article originally appeared on The DIV-Net September 22, 2008.
Linked here is a PDF copy of my detailed analysis of V.F. Corp. (VFC) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: V.F. Corp is a global apparel company with leading shares in denim and daypacks. The company is transforming into a designer and marketer of lifestyle apparel brands.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
VFC is trading at a premium to all four valuations above. If I exclude the high and low valuations and average the remaining two, VFC is trading at a 40.9% premium. VFC had a Star deducted for trading at a premium in excess of 5%.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
VFC earned one Star in this section for 3.) above. VFC has paid a cash dividend to shareholders every year since 1941 and has increased its dividend payments for 34 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
VFC earned no Stars in this section, and had one Star deducted for a negative NPV MMA Diff. The negative NPV MMA Diff. means that on a NPV basis for every $1,000 invested in VFC you would earn $1,669 less than a MMA earning a 20-year average rate of 4.61%. If VFC grows its dividend at 4.0% per year, it will never equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.
Other: VFC is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. VFC's has a strong management team in place. Recent acquisitions and international expansion provide for good growth potential. VFC continues to look for acquisitions of brands that will fit its portfolio. The denim business provides steady growth and generates significant cash flow.
Conclusion: VFC lost one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and lost one Star in the Dividend Income vs. MMA section for a net total of negative one Star. Since my scale bottoms out at zero, this quantitatively ranks VFC as a 0 Star-Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $51.18 before VFC's NPV MMA Diff. increases to the $3,000 NPV MMA Diff. that I like to see. At that price VFC would yield 4.53%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 9.7%. This dividend growth rate is more than double the 4.0% used in this analysis. VFC may be headed in the right direction, but at this level it does not earn a spot in my income portfolio.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I had no position in VFC (0.0% of my Income Portfolio) .
What are your thoughts on VFC?
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Thanks for submitting this post to the Festival of Stocks. It's always good to also read stock analysis that is negative on a stock in addition to the standard positive articles.
George: It is certainly my pleasure. I appreciate all you do with the Festival of Stocks and VIN.
Best Wishes,
D4L