V.F. Corp. (VFC) is one of the largest footwear, apparel and accessories companies in the world. Its brands include The North Face, Vans, Timberland, and Dickies, notes Bob Ciura, contributing editor to Top 10 Dividend Elite.
The company, which has been in existence since 1899, has a market cap of $18.5 billion. For the new fiscal year, V.F. Corp. expects revenue growth of at least 7% and adjusted earnings-per-share of $3.30 to $3.40, implying 5% growth at the midpoint.
The stock has fallen 39% this year, mostly due to business deceleration and fears that the Fed’s aggressive interest rate hikes made in response to 40-year high inflation may cause a recession.
V.F. Corp. has strong pricing power thanks to its premium footwear and apparel brands. It has also proved resilient to recessions. In addition, V.F. Corp. has an exceptional dividend growth record, with 49 consecutive years of dividend growth. Moreover, the stock is currently offering a nearly 10-year high dividend yield of 4.4%.
Given its healthy payout ratio of 59%, its rock-solid balance sheet, and its promising growth prospects, the company is likely to continue raising its dividend for many more years. It thus offers an attractive entry point for income-oriented investors.
The pandemic caused a 51% decline in earnings-per-share in 2020 but the company is now recovering strongly from the pandemic. We expect it to grow its bottom line by 7.0% per year on average over the next five years.
The shares are now trading at 13.3 times expected earnings. This valuation multiple is much lower than our assumed fair price-to-earnings ratio of 19.0.
We expect the stock to revert to its fair valuation level over the next five years. In such a case, the stock would enjoy a 7.4% annualized gain from valuation. When combined with a 7.0% growth rate and a 4.4% dividend yield, expected total returns come to 17.6% per year over the next five years.
