Thursday, April 21, 2016

Recent Buys (Tax Deferred) - VFC



The market is currently trading near the market highs for the year, so it is difficult to find opportunities. Last month, I had my eyes on PFE and GILD, but with a lack of cash, these slipped through my fingers. Now, they are a little expensive for me. But if you continue to dig, opportunities are available.


V.F. Corporation (VFC) showed up after digging through my CCC list with the following filters:
  • P/E<5 Yr Avg P/E
  • Yield>5 Yr Avg Yield
  • Wide Moat
  • Chowder>12



You can read more about VFC here: http://www.wikinvest.com/stock/V.F._(VFC)


You may not know the company, but you know the brands. My son can easily relate to a few of these brand names - so it passes my KISS test.



And more.......

I bought 40 shares on my tax-deferred account:


Date
Transaction
Ticker
Price
Quantity
Amount
4/19/2016
Buy
VFC
64.08
40
$2563.20+fees

The yield is around 2.31, so my forward annual dividends will increase by ~$92.40.


Criteria List


VFC 4/2016
Area
Criteria
CheckList
Comment
Quality Company
Dividend Growth
>5 years
Yes
43 Years
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable
FCF over Dividends
Yes
Yes
FCF covers Dividends
M* Moat
Wide Moat
Yes
Wide
M* & S&P
Credit Rating
> BBB+
Yes
A
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
No
Cash to Debt 0.51
Interest Coverage 18.58
Debt to Equity 34.63
M* & S&P Stars
> 3 Stars for both
Yes
M* 4 Stars
S&P CapIQ 5 Stars
Payout Ratio
<60%
Yes
47%
Dividend Growth
& Yield
Dividend Yield
>3%
No
2.31%
Dividend Growth
>5%
Yes
17.74%
Chowder
>12%
Yes
20.06%
Valuation
Yield/Avg Yield
>1.1
Yes
1.27
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 72.46
Low Point 46
P/E
Below Mid Point
Yes for Forward PE
Median 18.39 Current 22.44 Forward 17.43
DRRM
~10%
Yes
Assuming 7% growth; projected return=10.53%
M* Estimate
<M* est
Yes
M* 78
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 70

Data from Gurufocus, M*, Capital IQ

Valution

My valuation methods are based on Dividend Yield Theory, DDRM and P/E valuation. You can get the spreadsheet here: http://div4son.blogspot.com/2016/01/d4s-valuation-tool.html

Dividend Yield







Prices

High Price:
98.67
Mid Price:
72.46
Low Price:
46.25

DDRM


DDRM

Dividend Rate ($)
1.47
Divided by: share price
63.99
Current yield (%)
2.30
Core Growth Estimate (%)
7.00
Divided by: ROE (%)
23
Multiplied by: EPS ($)
3.25
Cost of Growth (%)
0.99
Earnings per Share ($)
3.25
Minus: Dividend
1.47
Minus: Cost of Growth
0.99
Funding Gap ($)
0.79
Divided by: Share Price ($)
63.99
Share Change (%)
1.23
Core Growth (%)
7.00
Plus: Share Change (%)
1.23
Total Dividend Growth (%)
8.23
Plus: Dividend Yield (%)
2.30
Projected Total Return (%)
10.53


Dividend Rate ($)
1.47
Required Return (%)
10.00
Growth (%)
8.23
Price
83.30


Dividend Rate ($)
1.47
Required Return (%)
10.00
Growth (%)
7.00
Price
49.06


Average
66.18

P/E Valuation


P/E High and Low

High P/E
31.00
Mid P/E
21.50
Low P/E
12.00


High Price
88.35
Mid Price
61.28
Low Price
34.20


P/E 5 Yr High
30.94
P/E 5 Yr Low
11.91


P/E 5 Yr Median
18.39


Current P/E
22.44


2016 P/E Est
17.43


Based on this, I believe VFC’s fair value is around $65-70.


The competition in this space is fierce. VFC competes with Hanes Brands (HBI), Ralph Lauren (RL) Brands, as well as Nike (NKE) and Under Armor (UA). Compared with the competitors in this space, VFC is actually quite expensive.


Moreover, the current market is very hot now… the VIX index is around 14 which means that I need to be very careful with my purchases. Check out Broke Investor’s explanation of this here: http://thebrokedividendinvestor.blogspot.com/2016/03/dips-doubling-down-recession-and-vix.html


What is your opinion on VFC? Do you like the purchase?


D4s

6 comments:

  1. Nice buy D4s! I haven't had this one on my radar for a while but the valuation right now looks good. I will be adding this to my short list to monitor for next buys. Thanks for the write up!

    ReplyDelete
    Replies
    1. Thanks Adam. With the market rebound, it's getting harder and harder to find quality companies to invest in with good valuation. I am not sure if VFC will go up or down in the short term, but for a long term deal, I think I will be okay.
      D4s

      Delete
  2. Don't know too much about the company (thanks for all the info) but shoe brands seem to be one type of retail that continues to grow. Nice choice :)

    Tristan

    ReplyDelete
    Replies
    1. Tristan, thanks for visiting. Vfc has a lot of brands. Actually, I am not a big fan of retail, but with the moat, dividend history, and all the other criteria, I think it is okay for the long term. Also, l split up my investment. I will add another 2k when it dips.
      D4s

      Delete
  3. Hi Div Son,

    today I looked at company (see my website). Two issues -> first, on EV/EBITDA valuation is quite demanding (12.5 times EBITDA), on P/E it is as you wrote somewhere about mid price. But look -> e-commerce is growing, problems in China with consumer (see Apple), in US consumer is strong (potential only to deteriorate?). Where from should growth come?

    I think that retail companies are quite cyclical. VF Corp is a high quality business with an awesome history of increasing dividends. Nevertheless analyzing P/E from 5Y perspective seems for me quite risky, as last 5 years are good for company ;)

    ReplyDelete
    Replies
    1. Dividend time,
      Thanks fir your comments. I agree with you that VFC is expensive compared with its peers. I am not a huge fan of retail, but I am okay with VFC due its wide moat and dividend history. The question is when to buy. For me, I like to average into a position. I find it easier to go in at the mid point and averaging down to an acceptable valuation. I actually split up this purchase with an intention of buying another 2k when we get to high 50s. I have another small buy lined up when it gets to low 50s. I know this may not work for everyone but it is my approach.
      I could wait for the next market dip, but its difficult to hoard a significant amount of cash to buy multiple companies at that time.
      Anyway, different strokes - like they say.....
      D4s

      Delete