An Investment Reporter Key stock, wine producer Andrew Peller Ltd. is earning much more this year. It’s using its growing cash flow to reinvest in the business, to repay debt and to raise your dividends. This top beverage stock remains a buy for further long-term price gains as well as decent and growing dividends.
The Investment Reporter regularly reviews Grimsby, Ontario-based beverage stock Andrew Peller Ltd. (TSX─ADW.A). Since we published our August 7 issue, the shares of this producer, bottler and marketer of wines have risen by 5.8 per cent. It’s expected to earn record profits in the year to March 31. We also expect the company to continue to raise its dividends. That’s why Andrew Peller remains a buy for further long-term share price gains as well as decent and growing dividends.
In the six months to September 30, Andrew Peller earned $13.7 million, or 99 cents a share. This was up by a whopping 52 per cent from $9 million, or 65 cents a share, a year earlier. Sales increased considerably more than costs in first half of fiscal 2016.
In the first half, Andrew Peller’s sales rose by 3.7 per cent. This reflected organic growth thanks to the expansion of its distribution. It also reflected the launch of new products over the previous year.
Sales growth outpaced costs growth
All of Andrew Peller’s regular operating costs as a group inched up by 0.4 per cent—much less than sales. It notes that its gross profit margins strengthened due to “ongoing cost control initiatives to improve productivity and raw material cost savings.” Selling and administration costs were essentially unchanged. The company’s interest costs dropped as it repaid debt and interest rates fell.
In the first half, Andrew Peller’s cash flow jumped by 38 per cent, to $19.7 million. This confirms its higher earnings. What’s more, the company’s cash flow significantly exceeded its needs. In the first half, its capital investment came to $4.6 million and its dividend payments to $3.0 million. Excess cash flow helped repay $12.7 million of debt.
Andrew Peller’s debt totals $76.3 million. That’s 2.3 times its cash flow of $33.1 million over the latest four quarters. That’s a little above our standard comfort level of two times. Then again, the company generates stable and predictable cash flow. Also, its ratio is moving in the right direction.
Among top consumer goods dividend stocks
With growing cash flow and an improving balance sheet, Andrew Peller has the means to reward its shareholders. It has paid dividends since 1979. On June 3, the company raised its dividend by 7.1 per cent, to a yearly 45 cents a share. This yields a decent 2.3 per cent. This was its seventh dividend increase in the past nine years. More important, Andrew Peller has raised its dividend in each of the past three years. With its improving earnings and cash flow, we expect it to continue to raise your dividends in the years ahead.
President and chief executive officer John Peller is confident about the company’s outlook for the balance of the year. He said, “Looking ahead, we anticipate another year of strong results in fiscal 2016.”
Andrew Peller expects to increase its selling expenses in the second half of fiscal 2016. That’s to support the new products that it recently introduced. On the positive side, the company is entering the best period of its year. Sales climb during the holiday season. And the long term outlook for wine sales is favorable.
Older people prefer wine
One positive long term factor for Andrew Peller is Canada’s aging population. This demographic shift should work to the benefit of consumer goods stocks such as wine producers. Older Canadians usually prefer wine to other alcohol-based drinks. The critical demographic for beer, by contrast, is up to age 35.
Another advantage is that older Canadians are affluent. As a result, they can afford to pay more for the premium and ultra-premium wines that Andrew Peller specializes in.
Yet another advantage is that wine is seen as helpful in warding off diseases that prey upon older people. Red wines, for instance, contain anti-oxidants that can prevent cancer. Wine can also reduce certain cardio-vascular diseases. This, too, bodes well for Andrew Peller.
The Investment Reporter, MPL Communications Inc.
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