V.F. Corporation, This Is Why You Own Dividend Kings

A King By Any Other Name Would Be As Stable

In recent weeks I have found myself turning up more and more Dividend Aristocrats and Dividend Kings in my search for opportune investments. Time and time again, when these stocks intersect with secular trends, pandemic-related stockpiling, remote-working, or technology their price action is bullish. But not all Dividend Kings are in the same boat, some, like V.F. Corporation (VFC), are not insulated from the COVID-19 recession, but that doesn’t mean they aren't a good buy or that you shouldn't own them.

If there is one reason why you want to own a Dividend King it is for steady, stable, long-term revenue. These companies have proven time and time again, through recession after recession, that they can deliver shareholder returns. V.F. Corporation, while still a few years short of the official Dividend King mark, is right there with them. Who, exactly, is V.F. Corp? V.F. Corp is the owner of iconic and well-entrenched apparel brands like Vans, The North Face, Eastpak, and Timberland.

The Results Are Not Good … But

V.F. Corporation reported 4th quarter 2020 (calendar 1st quarter 2021) earnings this morning and the shares are on the move. The company reported an 11% decline in YOY revenues for the 4th quarter that exceeded the analyst’s consensus by 700 basis points. Worse, GAAP earnings fell short by $1.28 putting the company’s net loss for the quarter at ($1.22). Along with this, the company saw a contraction in margins that shaved 350 basis points off of the operating margin.

Because the results were worse than expected the company revised its FQ1 guidance (calendar Q2) to a range significantly below the current consensus. The analysts were expecting revenue to shrink about 40%, the company thinks the figure will be closer to 50% - 53%. The news was not taken well by the market, needless to say, and share prices fell because of it.

There Is A But… This Is Why You Own Dividend Kings

There is a but and it is a big one. To begin with, the full-year 2020 results were positive despite the 4th quarter weakness, up about 2.0%. Looking forward, the company expects to have most of its stores reopened by mid-year so a rebound from the Q1 slowdown will begin before the period is even over. Store traffic is not expected to meet previous projections but so what, times have changed. The salient point is the company expects free-cash-flow to exceed $600 million or greater than 60% of the pre-COVID outlook. Plenty to keep the dividend safe and growing.

Looking at the balance sheet, I can’t find anything to be worried about, other than the potential long-term impact of the pandemic on this company. I think that will be negligible. What’s not negligible is the fortress-like quality of V.F.’s financials. Total debt is low, the covered-ratio is phenomenally high at 22.6, and the company has ample cash on hand.

Regarding the dividend, V.F. Corporation pays $1.90 annually which works out to about 3.6% after today’s -5% decline. We know this payment is safe because the company just issued its latest declaration and said there was no intention of cuts or even suspending planned increases.

“On May 12, 2020, VF’s Board of Directors declared a quarterly dividend of $0.48 per share. This dividend will be payable on June 22, 2020, to shareholders of record on June 10, 2020. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend and is currently not contemplating the suspension of its dividend program.”

The Technical Outlook: Is A Bottom In-Play

The charts of V.F. Corporation are encouraging for those looking for bargains and bottoms. The price action appears to be finding support at the $50 level and the indicators are more-or-less consistent with that. The risk is that momentum seems to be slipping and price action remains below the short-term 30-day moving average where resistance has been strong. If price action is able to regain the upper side of the EMA a bullish/buy-signal may emerge. The risk then would be resistance at the top of the near-term trading range at $60. If price action can close above that level more gains are likely in store. Regardless, the 3.5% yield is healthy and safe, and the long-term outlook for V.F. Corporation shareholders is robust.