The Value Play Hiding Behind a 300-Year-Old Luxury Brand

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The argument has long been made that venturing beyond America’s borders will offer investors higher yields. Many foreign companies do pay attractive dividends, but they lack consistency and predictable growth—factors that have kept us from investing overseas. 

But in this episode, we break the mold and head to the vineyards of France. Greg explores the under-the-radar story of Rémy Cointreau ($REMYY), the cognac maker behind the iconic Rémy Martin brand. What makes this story remarkable isn’t just the 3% dividend yield or the potential for earnings to normalize. It’s the value hiding in plain sight: aging inventory that becomes more valuable with time. With a wide moat and one of the most unique inventory structures we’ve seen, Rémy stands out as a compelling value play with rare downside protection. Markets are mostly efficient—but every now and then, a story slips through the cracks. 

 Topics Covered:

01:46 Exploring Foreign Dividend Opportunities 

02:40 Discovering Remy: A Value Play 

03:31 A First Look at Rémy’s Dividend and Valuation 

06:01 Performance History and the Power of Modest Growth 

08:11 Understanding the Cognac Market 

11:29 How Cognac Is Made and Why It Matters 

16:07 What Is Wrong with Remy? 

18:38 Cash Flow, EBIT History, and Financial Strength 

22:28 The Inventory Advantage 

25:18 Future Growth Potential and Valuation Scenarios 

27:49 Three Catalysts for Re-Rating 

33:32 Final Thoughts and Takeaways 

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Disclaimer: Past performance does not guarantee future results. Every investor should consider whether an investment strategy is right for them and all the risks involved. Stocks, including dividend stocks, are volatile and can lose money. Denewiler Capital Management may or may not have positions in the publicly traded companies mentioned herein.

Transcript

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[00:00:11] Greg Denewiler: This is Greg Denewiler, and you are listening to another episode of the Dividend Mailbox, a monthly podcast about dividend growth. Our goal is to stuff your mailbox full of dividend checks. When they grow over time, a funny thing happens, you create wealth. 

Welcome to episode 48 of The Dividend Mailbox. In this episode, we're going to go off the path a little bit and we're going to give you an idea that is not in our normal scope of what we do. No, it's not the typical Dividend Growth from Blue Chip America. However, there is dividend growth from Blue Chip Europe, and I think this'll be an interesting story. It's a little different. It does come down to the core of what we do, which is looking for a cashflow that we don't have to pay too much for. You know, we think there's leverage there in that, plus there's a great value proposition here. It's something that I think is worth your time to listen to. So with that, we will get into episode 48. 

We have had questions in the past about, “Well, why don't you ever look at a foreign company?” Because from one standpoint, dividends as a whole, the yields tend to be a little higher over in Europe and outside of the US­—partly just because the markets are cheaper and they haven't performed near as well as the S&P 500. So this month we're going to go off our usual beaten path. If you listen to any of these podcasts, you should know that we love a growing dividend story. But this time we're going to look at something that I believe there is definitely some potential for a higher income in the next few years, but this is really more of a value play. 

As we get into this story, ideas come from a lot of different places. I was doing some continuing education for the CFA designation. I was reading about balance sheet modeling. I thought, well, maybe I'll pick up an idea. And the first company that they looked at as an illustration was Remy. 

Okay. Who cares? Why did that mean anything? 

Well, I had looked at it just casually several years ago. I don't even remember why I, I just kind of passed over it, but when I was reading about it I thought, “Eh, it's kind of interesting.” I'm not a big drinker, but I do on Saturday night,  have a little bit of a tradition. I have a glass or two of cognac. It sort of caught my attention and I started looking at the company. First thing that pops up is this thing is really cheap. The stock was down a lot. But again, if you've listened to us in the past, we haven't been big fans of foreign securities because their dividends are not consistent. Foreign companies, especially European, they tend to pay more out of what they earn, whatever that may be. It can lead to a higher income stream over time. However, it doesn't have the consistency, which we really shoot for. But in this case, I think, as we go through the story, you'll realize why we've started with small position in it and really hope to grow it here in the near future. 

It trades as an ADR here.The stock actually trades in France because their headquarters are in Paris. So the ADRs that we are looking at, the symbol is R-E-M-Y-Y. They're one 10th of value of the security in Paris, which is about 50 euros. And here the ADR trades for a little over $5.60 cents. You just go back a few years back to actually 2021, and the stock was slightly more than $20, so it's come down quite a bit. That's going to become part of the story, and we will get to it in a little bit, but the current payment, it's got a 3% yield based on the payment that they're going to do in July. It's going to be 17 cents. If you just go back a couple of years, you had a dividend last year that was 22 cents and a dividend the year before was 32 cents. As I mentioned, their dividends are not consistent. But right out of the gate, we've got a dividend that's around 3%, which is our sweet spot. 

So then if you look at market performance from when I show this stock started trading in 2014 through April of 2023, it actually beat the S&P 500. It was up 182% versus 162% for the S&P 500. You go through now, you go all the way through June of this year, from January of 2014, now it's down 14% versus the S&P’s up 300%. So therein personally, I think lies an opportunity. 

Well, just to set the stage here, I'm going to remind you again that you don't need fantastic growth rates to compound and make a lot of money over the long term. Union Pacific—one that we've talked about in the past—from 1990 to 2024, revenue grew by a little less than 4%, but $10,000 turned into a little less than $500,000. Pretty amazing returns, and it actually beat the S&P 500. On another note, several podcasts ago, the Philip Morris story—this story is complicated. They spun off Kraft, they did a few other things, but here's the bottom line: revenue in 1990 was $51 billion, revenue in 2024 was 20.4 billion, but $10,000 in 1990 turned into a million dollars. Again, you don't need big growth rates. And if I need to beat this horse some more, it's our infamous Williams Sonoma story where we bought it about two and a half years ago. Revenue was $8.2 billion, and currently revenue is at a run rate right now of about $7.8 billion. Revenue has actually declined slightly, but due to free cash flow management and other factors, we actually made four times our money on it. What I'm doing is setting you up for what initially is going to sound like a boring story, but you might want to listen to this one because I think it's got a lot embedded into it. 

So now what I'm going to do is just give you a quick background of cognac because that is a huge part of this story. If you know anything about cognac, which most people don't, it's brandy, but the only way you can refer to brandy as cognac is the grapes have to come from a very small region around Cognac, France. It's highly regulated, and they protect their name pretty religiously. There are four major players. Hennessy's, the big one. They produce about a hundred million bottles a year. Then there's Remy, then there's Martel, and then there's Courvoisier. It's a little bit of a toss up between revenue or bottles, whether who's number two or three, whether it's Remy or Martel. But Hennessy has about 40% of the market. Remy has 16%, and they produce 20 million bottles. Martel has about 15 million bottles of production and Courvoisier has 12 million bottles. So the larger houses control a major part of the market, but there are a lot of smaller estate brands out there. Just as a point of reference, Hennessy is owned by Louis Vuitton. Courvoisier is owned by Campari. I'm not sure how you pronounce it— I barely speak English, so French is way out of my league. But anyway, all of these are owned by public companies, but with Remy, Cognac is 70% of their sales. All the rest of them, it's a much smaller piece. 

Remy does do some distribution for some other brands. They've got other brands themselves. They own a rum, they own another brandy name. They do own several things, but Cognac is their big revenue producer. 

Another little thing I'll just throw out there for whatever this is worth. Remy Martin started in 1724. Cointreau also started back in the 1700s. There are two families that own a little bit more than 50% of this business, and one of the families has been in this thing for more than a century. So we're talking about a lot of history here, and there's just a lot of culture. These are very, very, heavy brand, moat-type businesses. To understand this, and if you're going to own it, you really need to understand cognac. It, in and of itself, is somewhat of a brand. 

So what I'd like to do now is just go through a little bit of just how cognac is made, because that really is a part of this story from our standpoint. There are strict requirements as to how cognac is even made, even if it's made in Cognac, France. It starts with grapes, there are basically four or five different varieties, but they all come from that small region. The grapes are usually harvested in October. They are fermented for about three weeks. They cannot add sugar to it, which sometimes they do with wine production —which, cognac starts out as wine. Once the fermentation process happens for three weeks, then they go into the first distillation, and it's actually distilled twice. It's a two step process, and they do it over the winter. They cannot do any distillation after the end of March. They're not allowed to do anything through the summer. Then they put it into oak barrels. It has to be aged French oak, and it's supposed to be over a hundred years old. They put it in the barrels for 18 months, the new barrels. Then it's transferred to older barrels after that, and here, some of those barrels can be up to a hundred years old. This is where they start to really pick up the flavor and one of the key differences between wine and cognac is, you don't have to worry about oxidation spoiling the wine, turning it into vinegar. The longer the cognac sets in those barrels, the more it ages, as you'll see in a minute, the more valuable it is. And then at this point, they want to keep the barrels full because there is some evaporation. It's about 2% a year, and they refer to that as the angel's share. So angels are pretty fortunate on more than one level. There is some cognac that actually ages for more than 35 years, and at that point, they move it out of the oak because they don't want to keep dealing with evaporation and it can potentially dilute it over time, so they move it into glass containers. One thing that's kind of interesting, all cognac is blended at least twice. And that's actually required. Some of the older cognac, 150 different batches go into the final product, and part of the whole reason for that is to try to keep the consistency. There actually are some versions of cognac that you can buy that are up to a hundred years old. 

This becomes a key part of our story. Cognac is basically graded into four different grades. VS is the lowest. It has to have aged a minimum of two years to be even classified as cognac and then it's called VS, which is very special. The average price of a bottle of VS—And I'm just going to use Hennessy, it's the major brand and that way we can be a little consistent on pricing— Hennessee VS sells in the thirties, around $35. These are 750 milliliter bottles. Then the next grade is it has to go for a minimum of four years. It becomes VSOP, very special old pale. VSOP sells for $60. So basically it jumps 50% if you just go out two years of aging of the inventory. And then if it gets to 10 years, they can call it XO, which is extra old. Those bottles sell for around $250. So you go from $60 to $250 over the next six years. And finally, for Remy Martin, they actually own the Louie the 13th brand. That grade is between 40 and 100 years old. Depending on which bottle you buy, those bottles start at $4,500, and some of them can go into the multi-tens of thousands.So cognac age means everything. 

So what you have, I think, is a very wide moat in the cognac business. It's not easy. You don't become a cognac producer in the next six months. And now I'd like to just get into why that matters so much and as we started to look at this story, why we thought, “You know, hey, really need to take a serious look at this.” 

Just a couple of years ago, the stock was over $20 and it hit the low fours just a few months ago. And right now. It's trading around $5.60. The first question you might ask is, “Okay, what is wrong with Remy?” Well, couple reasons. 

One, they did have some supply chain issues. The rise of interest rates had a little bit of an impact because cognac is fairly expensive. Whoever is selling it to the retail was less incentivized to hold the inventory. There's been some competition with ready-to-drink as that's become a little bit more popular. Basically, mixed drinks in a can or bottle. And then finally, here's a big piece. Going back a few years, China, it being one of the big markets for cognac, coming out of 2020, their economy has never really recovered, so cognac sales have struggled. And then, towards the end of last year, France put a tariff on electric cars coming in from China. Well, China doesn't sit around and take anything without some retaliation, and one of the ways they retaliated was they put a 35% tariff on brandy and cognac. Since the only place where cognac is produced is France, that was a direct hit to them, and it wasn't just Remy. Across the board, Hennessy, Martel, all of these, they all show that cognac sales were down about 15% in the last six months to a year just because of what hit they took from China. All of those things have added up to bringing down sales of cognac. 

But here's the great news. Earnings before interest and taxes, their fiscal year just ended in March for 2025, were $226 million, so they're still profitable even though they've had a pretty significant drop in sales. One of the things that I think really helps this story too—and these numbers came off of Ycharts, so full disclosure there. If you go back all the way to 2001, you have EBIT for Remy  that was $167 million. It had grown up to about $312 million in 2013. Not quite a double. It hit $438 million in 2023, but by 2024 it really started to drop off and had fallen back to $309 million. Well, remember that that's earnings before interest in taxes. This company is still very cash flow positive, even going through the 2009, 2010 recession, even through 2020. Although people did drink more at home, restaurants and bars obviously were hit considerably. They did have a negative year in 2007, but they immediately bounced back to $200 million in EBIT. Looking at 2020 when they dropped from $292 in 2019 to $200 in 2020, the thing immediately rebounded back to $272 million the next year in 2021. Their total revenue is around 1 billion for the last year. Cognac was 70% of it, as I mentioned, and profit margins are pretty good in cognac. They're around 30% when you get to the EBIT, so the company has a fairly consistent degree of profitability. 

Now, is it somewhat volatile from year to year? Sure, but the main story is we've got a profitable company that's trading at basically a multi-decade low or very close to it. Earnings on the ADRs, last year were 25 cents. The year before, they were 41 cents. In 2022, they were 59 cents. 

In, 2023, the dividend was 32 cents. Last year it was 22 cents. And this next payment they're going to make, they've already declared it, it should be about 17 cents when you convert for the Euro. So it's about a 3% yield, which fits into what we are looking for as far as our starting point. If we just recover to 32 cents here in the next several years, if we get it in five years, boom, you know, we've met our goal just from dividend growth. And personally, which I'll get into this in a little bit, I think we can maybe get it sooner than that. 

They do have about not quite $700 million in debt, which is very reasonable. About 60-70% of it matures after 2030. It has an average interest rate of about 5.5%. It is BBB rated, so it is investment grade and for a small company like this, I would view that as also somewhat of a positive. 

So you may be wondering, you know, we spent a lot of time just talking about cognac. Here's the thing that is a great, in our view, margin of safety. If this thing struggles to work, we probably don't have too much downside because the asset value of Remy, it's about $3.4 billion. If you look at their inventory, that number is $2.1 billion. It is more than half of their asset value of the entire company. Your first response may be, “Well, that sounds like a negative. They're not managing their balance sheet very well, and they should have better inventory control.” About 98% of the time, it's an asset that needs to be turned over as quickly as possible in a company. But in this case, it is the exact opposite of that. Give me one company that actually can have an inventory that the longer it ages, the longer it sits on their balance sheet, the more it's worth. I mean, it's an unheard-of place for a business to be. If you have a piece of technology that's on the shelf for six months, you may not even be able to sell it. And if you go back and think about where I talked about the bottles. Two-year-old Hennessy cognac is $40. Four years is $60, 10 years, $250. The average inventory is roughly five years old. They're letting it age so they can sell it for more money. The inventory alone sits on there as cost of goods sold. It's sitting there aging. So it's probably worth at least 50% more than what it's listed on the balance sheet for. With the market cap of the whole company at around $2.9 billion right now, the value of the inventory alone will probably pay for what the entire company is valued at right now. You get management, you get a brand, you get a whole company, and future earnings power almost, I won't say for nothing, but you're paying very little for it. There's a lot of value here, and it lets us buy into a company and gives us a lot of protection on the downside because the inventory is worth in our mind, close to what the stock is selling for. 

Well, you may be wondering, okay, cognac, it's kind of an old stuffy drink. Is it going to stay relevant? Business Research Insights says that cognac will grow by not quite 4% a year for the next 10 years. Grandview research predicts 3% through 2030. Here's another little bit of a margin of safety. Remy Martin, most of these things, their market shares are somewhat stable. Remy says that they have gained slightly in the last few years, but they have about 16% of the global market for cognac. If cognac grows to $10 billion, which is what they project the market to be within the next 10 years. They have $611 million in cognac sales, 16% of 10 billion is $1.6 billion. So right there, if that happens, which predictions are predictions, nothing else. But if cognac gets to $10 billion, then in 10 years you got about a 2.5x sales gain from that. 

Another reason why we like it, if you look at price to sales last five years, the average has been about 5.8 times. Currently it's 2.7 times. The high was a few years ago when it was over $20, it was 10 times, and the low was 2 times. That low came a few months ago when the stock was down in the low fours. So at 2.7, the stock is half of what the average valuation has been in the last few years. It's pretty cheap. 

Just a simple back-of-the-envelope, if they reach $1.6 billion of cognac sales in 10 years, and that's 70% of the company, then that means their total revenue is close to $2.3 billion. If you just take four times as a price to sale, we're not even going to go to the average of 5.84 times. Four times $2.3 billion means you have a market value of $9.2 billion. That is about three times higher than where the stock is right now. Another alternative here from a valuation standpoint, and to get our required rate of return, if you look at it, takes 10 years for them to get back to $400 million of EBIT earnings before interest in taxes, and it trades at a 6% EBIT yield, that takes it up to $6.6 billion. With the current market value of $2.9 million, it's more than double. So we have multiple paths that we can get a significantly higher stock price here in the next several years. 

So what can move it? I think there are three different catalysts for why I want to own this thing and why we've started to buy it. 

Number one, the simple one is tariffs. If China and France resolve their tariffs dispute, then you've got an immediate jump in cognac sales because you're going to take a 35% tax off of it. So that's the first big thing. The next big date of when they expect to potentially negotiate on this is actually next month. We will see how that goes. China is pretty big into lifestyle, so I can't imagine they're never going to want to really be able to buy cognac at a reasonable price. We may even have a little pent-up demand in China, but revenue could potentially pop 15% in a really short period of time if the tariffs are resolved. Obviously that's an if. 

The next thing is just demand tends to fluctuate, and over time, it always seems to normalize. Cognac sales pick up, and then, you know, they just have simple growth of the market. 

The third thing is, with some of the challenges, they just brought in a new CEO. His name is Frank, I believe it's Marley, but I'm not sure how you pronounce it. His background, he spent 16 years at Chanel. He spent seven years at Unilever, so he has definitely got some distribution experience. He has some luxury experience. Part of his charge is to help re-stimulate sales and to continue to develop the luxury brand of cognac. 

I think cognac, it's hard to picture cognac—now, will the market go straight up or will it continue to be 3% growth or whatever? Who knows, but it's one of the few businesses—and railroads are one of the other ones that we've talked about in the past podcast—you wake up in 50 years and cognac is probably still going to be there, and in fact, they already have some barrels sitting there that they plan to sell 50 years from now. These companies have a real brand and they have a real moat from my standpoint. And when you get into XO and above, no matter what brand you're in, it's really more of a lifestyle, an experience. And a lot of times, you're drinking it either as some form of a celebration or purely just for the experience of it. 

So that's kind of the, I'm not going to call it the quick version because we really try to look at why we're buying what we're buying and why we think it can work. But for reasons we've already talked about, we think there's a lot of room to get some dividend growth out of it. It's already got our 3% sweet spot where we look to go. So we've got income coming in and we really think this is a real value play over the next several years. I'm not going to say we made an exception to our rule, but on some level we did. We have this 10-year model that we've talked about several times, where we try to double our yield in 10 years, and we want a total return target that we think is potentially going to be at least a hundred percent. Well, I think we've got a total return potential on this thing that's going to be much sooner than 10 years that it can double or better. We may also very well get a double in the dividend yield if it just normalizes in the next few years. I will tell you, though, this one, we're probably not going to be a long-term holder on it because it doesn't have the consistency of income growth. We probably will look to move out of this if the stock recovers, but we'll deal with that later. Our track record is that we do try to keep you informed. We talk about things that don't work and that work, but another little bit of a disclaimer I want to say is there's very few stocks that we have enough money to move. This one, we can actually move it if we wanted to, but that's not our goal— because it only trades about 50,000 shares a day and 50,000 shares at $5.50 is $275,000. So you got to be a little careful when you buy it. Personally, I would use limit orders. It's not extremely liquid, but it does trade. And there is a 15% foreign tax on it, but you do, from what I understand, you get that credited back on your 1099. 

So in final conclusion, normally we don't go into the space of foreign stocks, but this one obviously is, and you should know why we did. I cannot stress enough that this podcast is not about recommending stocks; it's about our process. Hopefully you understand our process that we went through on this one as we looked at it. It's a little bit under the radar, which is another reason why I kind of like it. It's not for everybody. I also understand that some people may not want to own it because it's an alcohol driven company. If you think it works for you, great. But the takeaway here is value can be found in a lot of different places, and one thing that you have to be careful with is that when you just look at the numbers, sometimes they really don't tell you anything or they can be misleading. When you look at these companies, always look for where maybe there's value that maybe the marketplace isn't totally recognizing. And in this case, I would say it's in the inventory number. There's a lot behind that. 

Look, we're not saying that we have found the bottom in Remy. Can the stock go lower? Absolutely. If the tariff dispute drags out, the stock could very well go back down to four. It could go to three and a half or three. I mean, there's no law that says just because of value is there, that the market is going to respect that. It just doesn't seem like we have much risk here and we have a lot of upside just for a few things to normalize or to get worked out. It's got the yield, it's got the brand, it's got the moat, and it's got history that really is in the corporate world, is almost unparalleled. 

I don't want to make any suggestions for anybody to go out and sample all the latest cognac brands. But Saturday night you might wanna try a little bit and decide if you think it's a good investment or not. 

If you enjoyed today's podcast, please leave us a review and subscribe. If you would like more information regarding dividend growth or our investment strategy, please visit growmydollar.com. There you'll find previous episodes and also our monthly newsletter. If you have any questions or anything to add to today's episode, please email ethan@growmydollar.com. 

Past performance does not guarantee future results. Every investor should consider whether an investment strategy is right for them and all the risk involved. Stocks including dividend stocks are volatile and can lose money. Denewiler Capital Management may or may not have positions in the publicly traded companies mentioned herein.