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Stock Analysis: V.F. Corp (VFC)

V.F. Corporation, together with its subsidiaries, engages in the design, manufacture, and sourcing of branded apparel and related products for men, women, and children in the United States. This dividend aristocrat has increased distributions for the past 38 consecutive years. The latest dividend increase was in October 2010, when the company raised distributions by 5% to 63 cents/share.

Over the past decade this dividend stock has delivered annualized total returns of 15.80 % to its shareholders.

The company has managed to deliver a 6.90% average annual increase in its EPS between 2000 and 2009. Analysts expect V.F. Corp to earn $6.19 per share in 2010 and $6.67/share in 2011. In comparison, the company earned $4.13/share in 2009.

The company’s return on equity has deteriorated steadily since hitting a hit in 2003. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by an average of 11.50% annually since 2000, which is much higher than the growth in EPS. The main reason is the increase in the dividend payout ratio over the past decade, triggered by a steep one time dividend increase of almost 90% in 2006.
A 12 % growth in dividends translates into the dividend payment doubling every six years. If we look at historical data, going as far back as 1986, V.F. Corp has actually managed to double its dividend payment every seven and a half years on average.

The dividend payout ratio has increased over the past decade, breaking out above 50% in 2009. Given the expected earnings of $6.19 in 2010 and the new annual dividend rate of $2.52/share, I would expect the payout to drop to 50% and to decrease further by 2011. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, VF. Corp is attractively valued at 13.50 times earnings, has an adequately covered distribution and yields 3%. I would consider initiating a position in the company on dips.

Full Disclosure: None

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