Brown-Forman Corporation (NYSE:BF-B) owns one of the most iconic alcoholic beverage brands in the world – Jack Daniel’s Tennessee Whiskey.
The company has enjoyed substantial growth over its rich operating history. The number of Jack Daniel’s cases sold by Brown-Forman increased from 600,000 in 1965 to roughly 15 million cases in 2015, and the stock’s market cap grew from $110 million to roughly $20 billion over that same time period.
Dividend investors have also enjoyed more than 30 consecutive years of dividend increases from the company, and we expect many more dividend raises in the years to come.
Brown-Forman has earned extremely high Dividend Safety (93) and Dividend Growth (87) ratings, and it’s certainly a business we would like to consider for our Top 20 Dividend Stocks portfolio.
Among the investors tracked by Insider Monkey, Brown-Forman lost popularity during the fourth quarter. A total of 20 funds reported long positions as of the end of December, down from 23 funds a quarter earlier. One of these funds is Richard Chilton’s Chilton Investment Company, which disclosed holding 791,344 shares of Brown-Forman in its 13F filing for the end of the fourth quarter.
Business Overview
Brown-Forman was founded in 1870 and has built up a portfolio of leading alcohol beverage brands, including Jack Daniel’s whiskey and Finlandia vodka.
Spirits account for 95% of the company’s sales, with wine representing the remainder of the business. This is a big change in mix compared to 20 years ago when spirits and wine were just 55% and 13% of sales, respectively (the remaining 32% was consumer durables).
By geography, 43% of Brown-Forman’s 2015 sales were generated in the U.S., 38% in international developed markets, and 19% in emerging markets. The company’s products are sold in approximately 160 countries around the world.
Business Analysis
Brown-Forman has built up the biggest American whiskey brand in the world. The company has consistently poured advertising dollars into its Jack Daniel’s family of brands to build and maintain strong consumer awareness. During its 2015 fiscal year, Brown-Forman invested $437 million in advertising, which represented more than 10% of the company’s total revenue.
With an operating history dating back over 100 years and billions of advertising dollars cumulatively spent, Brown-Forman has created a loyal following of consumers who have developed a preference for the taste of its whiskeys. This has helped the company consistently raise prices and maintain excellent profit margins.
Maintaining high awareness of the Jack Daniel’s brand has helped Brown-Forman profitably grow into new categories as well. The company can introduce new products and line extensions that leverage the Jack Daniel’s brand to quickly win new business. For example, the company’s introduction of Jack Daniel’s Tennessee Honey, a flavored whiskey, has generated strong growth the last few years.
Importantly, Brown-Forman has built an extensive distribution network that ensures its products are reaching the right customers in the right places. Replicating this network, which reaches roughly 160 countries worldwide, would take competitors decades of time and cost millions of dollars of expenses. When Brown-Forman launches a new product, it can plug it into its distribution system to get it on the shelves quickly.
The spirits market is also highly fragmented. According to International Wine & Spirit Research, the top ten biggest spirits companies have less than 20% market share on a volume basis. This fragmentation provides Brown-Forman with opportunities to introduce new products and acquire competitors’ brands to continue growing.
Growth has not been a problem. According to Brown-Forman’s 2015 annual report, the Jack Daniel’s family of brands has grown volumes at a 7% compound annual growth rate since 1956.
However, the company actively manages its portfolio of brands and is not afraid to divest underperforming ones. Most recently, Brown-Forman sold its Southern Comfort and Tuaca Brands for about $544 million.
Brown-Forman has the strongest American whiskey brand in the world and has done an excellent job building its brand equity and converting it into growth for many decades. With a continued focus on advertising, new product introductions, and deeper penetration in international markets, Brown-Forman has plenty of opportunity to continue talking share in the fragmented spirits market.
