Brown-Forman

Brown-Forman reminds us why we love investing in individual stocks

When I was first building my portfolio and looking for a foundation of high quality blue chip stocks, I almost skimmed right past Brown-Forman.  I never heard of it.  It sounded like an old shoe manufacturer or something.  Little did I know, this holding would become one of my favorites.  One that I will likely never part with.

This week Brown-Forman did something very shareholder friendly and reminded us why we like investing in individual stocks.  Real businesses.  They produce a product and allow the owners to share in the profitability of the company.

I am not recommending you to go out and buy shares of this fine company today.  We would love to acquire more shares of this business but the valuation is unruly high.  I would love to make this company our highest weighted holding, but we rarely find the valuation attractive enough to buy more shares.  Maybe one day I will be able to stuff shares into our portfolio.

Who is Brown-Forman?

The Brown-Forman company was created back in 1870 by George Garvin Brown.  He and his half brother had an idea to start selling whiskey in a bottle instead of the usual barrel that was common at the time.  The product they sold is still in distribution today, Old Forestor Kentucky Straight Bourbon Whiskey.

I am a regular customer of some of their other brands, but never tried Old Forestor.  Maybe today, I should go out and buy a bottle of Old Forestor.  Why not?  I am in such a good mood from this company, but I digress.

In 1956, the company did something that would change the fate of its existence.  It acquired a brand that would develop top brand recognition across the world, Jack Daniels.

Brown-Forman

Over the decades that follow, the company acquired a stable of brands that include one of my favorites as a customer, Woodford Reserve.  I’ve never come across a better flavored whiskey and one that I go back to time and again.

Some of the other brands in the portfolio I know very well, like Herradura Tequila.  When I was out visiting family in Phoenix a couple months ago, my brother and I found ourselves out at a bar for the first time in about ten years.  On the recommendation from the bartender, we found ourselves sipping on one of the most delicious tequila’s, Herradura Double Barrel Reposado Tequila.

The companies competitive advantage lies in this excellent brand value.  Jack Daniels continues to leverage the name and develop bolt on products through innovation like Tennessee Honey and Tennessee Fire.  They even came out with an apple flavored variant called Winter Jack.  I’ve never sampled these varieties, but I understand they are doing pretty well for the company.

Brown-Forman rewarded shareholders this week

You might wonder, at this point, why I am talking about this company today.  For one, it was the second best performing stock in my portfolio for 2017, returning about 52%.  But, that is not the reason.

The reason why I mention Brown-Forman in the same context of why I love investing in individual stocks is because they disclosed a very shareholder friendly action this week.

They are offering all shareholders of Class A and Class B shares, a special dividend of $1.00 per share.   This is in addition to the $.1975 per share quarterly distribution shareholders will expect this year.  But wait, it gets even better.

In addition to the special dividend, the company reviewed the capital structure and prosed a five for four stock split.  This means shareholders get an additional one share for every four shares they hold.  Any fractional shares from the split will be distributed as cash.

Now usually a stock split by itself wound not cause me to cheer because this usually means just an increase in shares outstanding.  However in this case, the stock split will occur in February and the special dividend will pay out in April.  This means shareholders will get the special dividend payment on the newly split shares, in addition to the shares they are currently holding.

Let’s stop and cheers to this shareholder friendly management and board of directors!!!

 

What is your favorite shareholder friendly companies?  What have they done to make you cheer lately?

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