Two Dividend Aristocrats To Watch In 2021

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Source: VF Q3 FY 2021 Presentation

Despite the challenging retail environment the virus has created for VF, management is forecasting a fast recovery in 2021. The company upped guidance after the third quarter to $9.1 – $9.2 billion in revenue and over $650 million in free cash flow resulting in adjusted earnings per share of about $1.30.

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Source: VF Q3 FY 2021 Presentation

Risks for VF

Unemployment leads to less consumption. Given the high level of unemployment spurred by the pandemic worldwide. Sales have taken a hit and should take some time before recovering to pre-pandemic levels. Given the nature of the coronavirus, businesses with a strong direct-to-consumer digital channels should be the ones to benefit the most. E-commerce sales rose last year and now represent 17% of all retail sales. VF has been able to increase its direct-to-consumer revenue. Revenues in that segment rose 10% in the 10 months prior to February 2020. Consequentially digital sales also grew 18%. Eventually, management should be able to regain this operational performance it has achieved in the past.

The second risk is decay of brand recognition. The biggest risk a clothing company like VF faces is the possible demise of the value of its brands. If for some reason, consumers decide to steer away from its brand portfolio it will be difficult for the company to maintain revenues and margins. Although it seems highly unlikely at this point that VF’s brand portfolio would lose its preference among consumers. It is an important risk to keep in mind, when investing in a stock in this sector.

Final Thoughts on VF

Concerns surrounding the impact of the virus on VF’s operations have now vanished. The company remains strong and has shown how it can sustain incredibly adverse economic situations. The company was not one of the retailers to cut or suspend its dividend. Given the current stock price, and expectations of earnings about $1.30 for the next year it translates into a price-to-earnings ratio of roughly 58X. No matter how valuable the company is and its brand portfolio. The future expected growth hardly justifies the high multiple price-to-earnings. It seems overvalued despite the great performance in the past. It would be wise and prudent to wait at this point for a pullback.

Walgreens Boots Alliance

The second of the two Dividend Aristocrats we should watch in 2021 is Walgreens Boots Alliance (Nasdaq: WBA). Walgreens Boots has an excellent track record of dividend growth. The stock has been trending down since it reached a peak in 2015. Since then, the stock has lost over 50% of its market cap, mainly attributed to reduced margins. Walgreens Boots has the distinction of being one of the three worst performing Dow Jones stocks in 2020 and also in 2019.

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Disclosure: Value of Stocks holds no positions in the stocks mentioned. You can read his  more

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