Under-the-radar winemaker matures into one of the best Canadian dividend stocks

Best Canadian dividend stocks

Today, we look at a Canadian winemaker that has earned surprisingly little notice from the investment community in spite of the growing popularity of premium wines in Canada. The shares of Andrew Peller have risen 18.9% this year and its steadily increasing dividend payout has made it one of our best Canadian dividend stocks.   

ANDREW PELLER LTD. (Toronto symbol ADW.A; www.andrewpeller.com) is a great example of a key part of our three-pronged investing strategy, which is to downplay stocks in the broker/media limelight (the other two are to invest mainly in well-established companies, and spread your money across the five main economic sectors).

Few brokers cover Peller due to its relatively small market cap. Even so, it has a long history of rising earnings and dividends.

Andrew Peller is Canada’s second-largest producer of wines, after Vincor International. Its wineries in Nova Scotia, Ontario and British Columbia account for 13.4% of the Canadian wine market.

Its chief wineries include Peller Estates, Trius Winery at Hillebrand, Thirty Bench Wine Makers and Wayne Gretzky Estates in Ontario, and Sandhill, Red Rooster and Calona Vineyards in British Columbia.

Andrew Peller opened his first winery in Port Moody, B.C. in 1961 as Andrés Wines Ltd. In 1964, winery operations were established in Calgary, Alberta and in Truro, Nova Scotia.  In 1970 Andrés entered the Ontario market with the purchase of Beau Chatel Wines in Winona.  In 1974 Andrés expanded into Quebec with the founding of Les Vins Andrés in St. Hyacinthe. 

In 1994 Andrés signalled a greater emphasis on higher-priced premium wines when it acquired Hillebrand Estates Winery, Canada’s largest producer of VQA and premium wines, located in Niagara-on-the-Lake, Ontario.

The company’s current headquarters, the Peller Estates Winery, was opened in Niagara-on-the-Lake in 2001. In 2006 the company officially changed its name to Andrew Peller Limited.


Hidden value in plain sight

Corporate balance sheets sometimes fail to reflect some very valuable assets. In The Successful Investor Pat McKeough seeks out hidden value that brings spectacular gains where many others fail to look—in well-established dividend-paying stocks, including those with a growing reputation, like Andrew Peller.

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Best Canadian dividend stocks: Strong earnings prompt a 7.1% dividend raise

In its 2015 fiscal year, which ended March 31, 2015, Peller’s sales rose 6.0%, to $315.7 million from $297.8 million in 2014. That’s mainly because it launched several new products, including its skinny-grape spritzers and Panama Jack cocktails. The company also started selling its Wayne Gretzky wines in Western Canada earlier this year.

Earnings gained 12.4%, to $15.8 million, or $1.13 a share, from $14.0 million, or $1.01. Without unusual items, such as gains and losses on foreign-exchange hedging contracts, earnings rose 11.0%.

The strong earnings prompted Peller to raise its dividend by 7.1%. The new annual rate of $0.45 a share yields 2.5%. The company has now increased the payout in seven of the past nine years.

Peller is also restructuring its home-winemaking division. The lower operating costs resulting from the restructuring should help Peller offset the negative impact of the lower Canadian dollar, which increases the cost of wines it imports from the U.S. and Europe.

Meanwhile, the company should continue to benefit from rising demand for higher-priced premium wines.

Recommendation in The Successful Investor: BUY  

Comments

  • Several years ago I dropped in to the Peller Estates winery and picked up a copy of the annual report. The stock was about $ 5 back then but I got distracted for a while and now !! I made a mistake back then but TSI did not cover Peller much at all then so missed!!

    • Bill:

      Thanks for your comment.

      Just to let you know, Pat McKeough first recommended the stock in the April 1995 issue of The Successful Investor at $3.67 ($11 adjusted for 3-for-1 split in Oct. 2006).

      We still see the shares (now trading at $17.95) as a buy.

  • Richard

    Happy I bought Andrew Peller in 2000 at $13.50 with a 4.6% dividend at the time. I bought more before the split averaging $5.92 at the split. My friends were telling me you bought what?

    Thank you Pat

  • Robert B.

    Both the investment club I belong to, as well as my wife purchased shares of this remarkable company. We live in the Niagara area so attend the annual meeting on a regular basis.

    Companies don’t actually do very much, it’s the people who manage and work for the organization that gives it the character. I have attended at least 5 of the last shareholders meetings and have found each interesting. Apart from the time on financials, much of the 1 hour or less that the meetings take, involve the president’s presentation on different aspects of the wine business. The topics are interesting, well presented and gives us (the shareholders)an incite into the business. Topics like the acquisition of sufficient bottles, the relationship with Wayne Gretzky, and to top it off after the meeting there is a tasting of wonderful wines as well as delightful finger foods.
    Who could ask for a better investment

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