Grapes, share price and dividends all growing

Outstanding summer weather in both British Columbia and Ontario is leading to a superior grape harvest this year. Combine that with a recent stock split and a new dividend reinvestment plan, and it may be time to lay down some shares of Andrew Peller Inc. in your portfolio’s cellar for long term share price gains and growing dividends.

Key stock Andrew Peller Inc. (TSX—ADW.A) is splitting its shares three-for-one. It’s also introducing a dividend reinvestment plan. And it has a favorable dividend record. Peller remains a buy for further long-term share price gains and decent dividends that rise more often than not. It also did well in the first quarter of fiscal 2017 (to June 30).

President and chief executive officer John Peller said: “We believe the increase in the number of shares outstanding will enhance shareholder liquidity, increase investor interest in the company, and bring the trading price into a more accessible range for all investors.” Big investors often need adequate liquidity before they’ll buy a company’s shares.

Peller is introducing a DRIP (or Dividend Reinvestment Plan). The company “believes the DRIP provides Class A shareholders with a cost-effective method to increase their investment in the company”.

A Canadian dividend growth stock

On June 3, Peller raised its dividend by 8.9 per cent, to a yearly 49 cents a share. That yields a decent 1.7 per cent. This was the company’s seventh dividend increase in the last 10 years. We expect it to continue to raise its dividend as earnings grow.

In the three months to June 30, Peller generated net earnings of $8.6 million, or 54 cents a share. This was up by nearly 29 per cent from net earnings of $6.7 million, or 42 cents a share, a year earlier.

Mr. Peller said: “Our track record of strong organic growth and increased profitability continued in the first quarter of fiscal 2017, following another record year in fiscal 2016.”

In the first quarter, Peller’s sales totaled $87.9 million. This was up by 5.8 per cent from $83.1 million, a year earlier. It credits part of this growth to the “successful launch of new products and categories.”

Peller’s first-quarter gross profit also climbed. This partly reflected cost control measures to improve its productivity. Also, the cost of its raw materials declined. But this was largely offset by the decline in the Canadian dollar. A lower loonie buys fewer goods, particularly those priced in U.S. dollars.

Just keep in mind that Peller’s higher earnings were not confirmed by its cash flow. In the first three months of fiscal 2017, it generated cash flow of $10.5 million. This was down slightly, however, from cash flow of $10.7 million, a year earlier. That’s mostly due to much higher income tax payments this year.

Then again, Peller’s cash flow exceeded the $5.9 million it invested in property, plant and equipment, as well as dividend payments of nearly $1.6 million. Excess cash flow of $3 million should enable the company to keep repaying debt. This excess cash flow could grow if investors enroll in the new DRIP.

What Andrew Peller does

Peller grows grapes in Ontario and British Columbia. It supplements its own crop with grapes from vineyards worldwide. The company then makes premium and ‘ultra-premium’ wines and it also makes a range of lower-cost brands.

Peller also produces and markets personal wine-making products. It owns and operates 100 independent retail locations under store names The Wine Shop, Wine Country Vintners, and Wine Country Merchants.

Peller’s subsidiary Global Vintners “distributes products through over 170 Winexpert authorized retailers and more than 600 independent retailers” across Canada, the U.S., Britain, Australia, New Zealand and China.

 

The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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