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Brown-Forman Hikes Dividend: What Else Should You Know?

Zacks Equity Research

Brown-Forman Corporation BF.B is focused on boosting investors’ sentiments through several growth initiatives and shareholder-friendly moves. The company announced a 5% dividend hike on its Class A and Class B shares, taking the dividend from 16.60 cents a share to 17.43 cents. This is payable on Jan 2, 2020 to shareholders of record as on Dec 5.

Brown-Forman has been committed toward boosting shareholders’ returns for quite a few years now. In fact, this marks the 36th consecutive year of dividend increase for the company.

We appreciate Brown-Forman’s efforts to consistently enhance long-term shareholder value. Markedly, dividend hikes not only enhance shareholder returns but also raise the market value of the stock. Through this strategy, companies try to win investors and persuade them to either buy or hold the scrip instead of selling it.

Brown-Forman’s strong balance sheet and cash flows support its traditional practice of returning cash to shareholders through dividend payouts and share repurchases. As of Jul 31, 2019, the company had cash and cash equivalents of $307 million, and generated operating cash flows of $72 million. Its total debt was $2,487 million as of Jul 31, 2019, reflecting a decline from $2,556 million at the end of fiscal 2018.

Apart from dividend hikes and shareholder friendly moves, the company’s strong portfolio of globally recognized brands, including the Jack Daniels family of brands, positions it well in the alcohol beverage space. It currently owns and produces a multitude of popular spirit brands, including Southern Comfort and Finlandia Vodka. We expect the company’s continued focus on pricing, product innovation and expanding operations in emerging markets to boost operational performance and further strengthen market position.

The company is focused on investing in the diversification of its brand portfolio to drive growth. For more than a decade, the Jack Daniel's Tennessee Whiskey has been the key contributor of growth in the United States. The company’s investments in brands center on the broadening of the Jack Daniel’s family of brands, while also exiting the weaker brands and expanding the fast-growing premium spirit categories.

Brown-Forman is also investing in organically accelerating growth of the two fast-growing spirit categories, bourbon and tequila. The Woodford Reserve and the Old Forester trademarks are mainly driving growth of the bourbon category in the United States. Further, the tequila portfolio in the United States is gaining from strong performance of the Herradura and el Jimador brands. These balanced portfolio investments are supporting the company’s track record of consistent growth.

Backed by such upsides, shares of this Zacks Rank #3 (Hold) company have increased 17% in the past three months, against the industry’s decline of 6.4%.

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