Time for Another Performance Check

For some background on the idea of a Performance Check, and for the XIRR function used for the calculations, please see my first post in this series.

The series continues with a look at another dividend-paying stock from my Portfolio (this is now the 20th overall).  My last Performance Check was about 7 weeks ago, when I examined my performance for Union Pacific (UNP).  UNP set the bar high with an impressive compound annual growth rate of 22.65%.  Let’s see if today’s company can come anywhere close to that.

Today, I’ll be checking my performance for VF Corp (VFC).  VFC is part of the Consumer Discretionary sector, and the Retail Apparel industry.

 

VFC designs, markets, produces and distributes lifestyle apparel, footwear and other related products.  VFC owns more than 30 brands which are organized into 3 different segments: Outdoor, Active, and Work.

VFC’s purpose “is about enabling people to live sustainable and active lifestyles”.  Some of the company’s brands include The North Face and Timberland in the Outdoor segment, Vans & JanSport in the Active segment, and Dickies in the Work segment.

VFC was founded way back in 1899, and is currently headquartered in Denver, Colorado.

The company has close to 50,000 employees, and has a market cap over 32 billion dollars.

One fairly recent corporate development included the following… in May of 2019, VFC spun off its jeans and VF Outlet businesses.  The jeans brands included Wrangler, Lee, and Rock & Republic.  The spun-off businesses became Kontoor Brands (KTB).

 

I added VFC to my Portfolio near the end of 2015.  I feel like it’s performed well for me since I’ve owned it, but it certainly hasn’t led my Portfolio.

How good has performance been?  Let’s find out.  However, we’ll first take a look at their historical dividend growth.

 

 

As one can see, dividend growth has been up and down over time, and tailing off in recent years.

The most recent dividend raise was a meager 2.08% in October of last year.

In the decade of the 2000s, dividend growth was inconsistent.  Short of some sweet raises in 2006 & 2007, growth seemed to hover in the 4% range.

Still, VFC began providing some impressive dividend growth from 2012 through 2018.  It looked like this might continue… perhaps be a new normal.

However, the growth in 2019 was muted.  This was essentially the result of the dividend being adjusted accordingly to account for the KTB spinoff.

The raise in 2020 wasn’t impressive either, but it’s hard to knock VFC for a small increase given the impact the pandemic had on its business.

This year’s raise (in October) will thus be very interesting.  Will the weaker dividend growth from the past couple of years remain, or will VFC get back to double-digit dividend growth that began in 2012?

I suspect it will be the weaker dividend growth that persists.  The payout ratio for VFC has been climbing in recent years (well above the ~40% that might be considered its historical norm) and it looks quite elevated now with the company’s reduced earnings during the pandemic.  VFC has a payout ratio of nearly 64% based on an average of this year’s earnings estimates.

While is looks like VFC did not raise its dividend from 2019 to 2020, it technically did if you account for the fact its dividend was reduced due to the KTB spinoff.  I believe this fact has kept VFC’s dividend streak intact.  VFC is just a year away from Dividend King status.

 

My Personal Performance for VFC

Below is a capture of the spreadsheet I keep with my VFC cash flows, and the calculated XIRR (through 7/11/21).  Compared to my five legacy Portfolio holdings (PG, RPM, AFL, PEP & JNJ), the table for VFC is small, due to its shorter holding period and small number of transactions.  With VFC being a relatively new Portfolio position (a bit over 5 1/2 years), I don’t have a large amount of data/time to factor into the return calculated in this Performance Check.  Therefore, as I move forward in the near-term, large price changes can have a significant impact on my annualized return.

Here’s a note with regard to the possible ‘Type’ column entries: EOY Value = End Of Year Value, Dividend = a dividend that was not reinvested (a cash outflow), Options = income from writing options against the shares (another cash outflow).

The duplicate EOY Value entries at the end of each year (one negative, one positive) do not affect the cash flow, and can be thought of as boundary markers, allowing me to make the individual yearly return, and the annualized total return calculations.

 

 

I established my VFC position on November 13, 2015 with 50 shares at a non-spinoff-adjusted price of $62.608/sh.

I was relatively active with my VFC trades compared to my other holdings.  I proceeded to add to my position a couple of times in 2016 as the price declined, then added one final time early in 2017.  Each of these buys was another 25 shares.

I sold 50 of my shares (the original lot – which had the highest cost basis) in the summer of 2017 for a minimal gain.  I wanted to reduce a position that had grown a bit too big for my Portfolio.

Since then, VFC trades have settled down immensely, with not a trade to speak of.

I’ve only recorded 2 positive years since holding VFC, but those positive returns in 2017 & 2019 were massive, and have allowed me to realize a decent annualized return.

Absent my 1 sale, I’ve been holding my shares and reinvesting my dividends.  Those reinvested dividends have resulted in my position growing by 12.63 shares.  My position currently stands at 87.63 shares.

 

The following price chart provides another helpful way to view the performance of VFC.  It shows the stock price change since my initial purchase on 11/13/2015.

This price chart leaves something to be desired.  The price has not risen much since I started my position.  Performance would be worse had I not been able to average down during the price slump in late 2016 and early 2017.  Meanwhile, the pandemic didn’t do VFC any favors.  The stock has yet to fully recover its pre-pandemic highs.

As of 7/11/21, VFC is down year-to-date for me, falling 1.54% including dividends.  This is clearly lagging behind the S&P 500 performance in 2021, and is dragging down my Portfolio performance as a whole this year.

 

 

The yield for VFC (as of 7/11/21) stands at 2.36%.  This is roughly in-line with its 5-yr. average dividend yield, and just above my average Portfolio yield of 2.25%.  With VFC’s dividend growth over the years, my yield on cost for the stock is 3.64%.

VFC is currently my 35th largest position in my Portfolio (out of 54 positions).  It currently has a value weighting in my Portfolio of 1.25%.

My dividend weighting for VFC is slightly higher, at 1.31%, making it the 34th best dividend payer in my Portfolio.

Of my 5 Consumer Discretionary holdings, VFC is the smallest, and the one I currently have the most doubts about keeping for the long-term.

All VFC dividend payments I’ve received since my position was started have been reinvested.

After accounting for the KTB spinoff…

My current investment in VFC is $3,865.98.  My cost basis, which includes $853.93 in reinvested dividends, is $4,719.91.

Meanwhile, the current value is $7,279.42, which reflects a capital gain (on paper) of $2,559.51.  I also had a realized long-term capital gain of $26.53 from my one sale.

The annualized total return ends up being 10.96%, covering the entire holding period from my initial purchase on 11/13/2015, through 7/11/2021.

 

Summary

VFC came in with nearly an 11% annualized return for my Portfolio.  This is a solid number.  However, it’s only middle-of-the-road when compared to my other Performance Check stocks (see below).

The current yield for VFC is just above my Portfolio average, but still soundly above that of the S&P 500.

My capital appreciation with VFC has been spotty, bolstered by a couple of outstanding gains in 2017 and 2019.

Dividend growth has been inconsistent, too.  Long-term averages still look pretty good, but have declined noticeably in recent years, and I suspect that will continue until VFC can get earnings growing again and reduce its payout ratio.

VFC is not differentiating itself from the other stocks in my Portfolio.  It doesn’t seem to be excelling at any Portfolio metrics.  Therefore, I plan to keep my eyes open for a possible replacement from the same sector.

I have no plans to invest in VFC at the moment.  I’d like to see some EPS improvement in the upcoming quarters before adding to the position.

 

Performance Check Comparisons

Bringing the returns for all my other Performance Check stocks up-to-date allows for the comparison in the table below.

The Performance Check stocks I’ve reviewed in the past are:

PG, RPM, AFL, PEP, JNJ,

AL, GILD, TROW, FAST, WPC,

O, GNTX, QCOM, XOM, SWKS,

ITW, BLK, DGX & UNP

 

The table’s rightmost column below shows the year of my initial purchase for each stock, just to provide some detail with regard to how many years are part of the annualized return.

Also note, XOM was sold due to poor performance, so annualized returns are no longer provided for that stock.

 

 

VFC makes its initial appearance in my Performance Check table with a solid annualized return of 10.96%.  However, this puts it as slightly below average when compared to the other Performance Check stocks I’ve reviewed.

With regard to movement in the table since my last Performance Check about 7 weeks ago, half of the stocks (9) improved on their annualized returns, while the other half (9) declined.

No stocks joined or left the 20% annualized return club.

 

My biggest mover to the upside this time around was Skyworks Solutions (SWKS), which added 2.00% to its annualized return, from 17.33% to 19.33%.  SWKS was my biggest decliner during my previous Performance Check, so a nice turnaround, indeed.

This was followed by a 1.23% annualized return improvement from Qualcomm (QCOM), and 1.18% from T. Rowe Price Group (TROW).

Since my last Performance Check, the biggest mover to the downside with regard to annualized returns was Gentex (GNTX), which slipped 1.20%, from 16.67% to 15.47%.  My next largest decline came from Illinois Tool Works (ITW), which dropped 1.06%, from 21.91% to 20.85%.  It’s difficult keeping such lofty return rates elevated.

As a group, my Performance Check stocks continue to keep a smile on my face.  In this case though, I don’t think VFC helped boost my Portfolio performance, but it probably didn’t hurt it much either.

After a decline from Air Lease (AL) during this Performance Check period, I now have two stocks in the group showing an annualized return of less than 8%.  However, Gilead Sciences (GILD) continues to bring up the rear by a noticeable margin, only managing a 2.60% annualized return for me.  GILD was essentially flat this time around, so at least it didn’t pull back any further.

 

On deck for my next Performance Check is Visa (V).  The stock has had some excellent returns for me over the years.  Thus, I’d be surprised if V isn’t able to join the 20% club.  Find out next time!

 

Have you been holding a stock for a few years, but don’t have a good idea of the return the stock has provided for you?  It could be time for a Performance Check!  I look forward to your comments, as well as you sharing return numbers for any Performance Checks you’ve done.