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Beverage stocks are still defensive

Stock market setbacks do happen. So it can pay to buy defensive beverage stocks. Their valuations and dividends are usually favourable compared with those of, say, tech stocks.

Shareholders enjoy a toast to Andrew Peller’s status as a ‘dividend aristocrat’.

We regularly review Grimsby, Ontario-based beverage stock Andrew Peller Limited (TSX—ADW.A).

ADW.A “is one of Canada’s leading producers and marketers of quality wines and craft beverage alcohol products. . . . The Company owns and operates 101 well-positioned independent retail locations in Ontario . . .. The company produces and markets personal wine-making kits.”

It earned a lot more in the first nine months

In the nine months to December 31, ADW.A’s sales advanced by 4.6 per cent, to $313.9 million. Its gross profit margin slipped by 2.3 per cent, to $120.6 million. The COVID-19 pandemic impacted the company’s sales mix. It responded by slashing its selling and administrative expenses by 14.8 per cent, to $6.2 million.

ADW.A reported net earnings of $34.1 million, or 80 cents a share. Remove a one-time gain, however, and it earned an adjusted $31.8 million, or 75 cents a share. This was up by 31.6 per cent from $24.5 million, or 57 cents a share, a year earlier.

President and chief executive officer John Peller said: “We are pleased with our sales growth and increase in net earnings the first nine months of the year, a testament to . . . the resiliency of our diversified and well-established network of trade channels. Looking ahead, we are confident we will see strong operating performance through the balance of our fiscal year.”

EPS growth of 43.6% expected

In fiscal 2021, ADW.A is expected to earn 79 cents a share, after its seasonally-weak fourth quarter. That would represent earnings per share growth of 43.6 per cent.

Even so, the situation remains uncertain. Mr. Peller said, “we remain cautious as to the possible impacts the pandemic may have on our results”. A slow rollout of the vaccines, for instance, could keep visitors from going on ADW.A’s wine-tasting tours.

On the positive side, ADW.A is well priced. It trades at only 12.9 times the $1.79 a share it’s expected to earn in fiscal 2021. The company has just raised its dividend again, by five per cent. It now pays an annual 22.5 cents a share. Having raised its dividend for more than five years in a row, ADW.A remains a ‘dividend aristocrat’. It remains a buy for further long-term share price gains and decent, growing, dividends.

This is an edited version of an article that was originally published for subscribers in the February 26, 2021, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.

The Investment Reporter, MPL Communications Inc.
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