Diageo PLC (DEO) is a global leader in alcohol — a formidable industry. The firm has a colorful portfolio of over 200 brands, and operates in over 180 countries, notes Rida Morwa, editor of High Dividend Opportunities.
The company is time-tested, has grown sales and raised dividends paid to shareholders through good and bad economic conditions and is well-positioned to fight rising rates.
Despite COVID-19 variants and associated global restrictions on restaurants and bars, the company reported its stellar 1H 2022 performance, with net sales of £8.0 billion (15.8% growth YoY).
Compared with other beverage alcohol companies, Diageo's geographic diversification ensures stability from the mature and highly profitable North American market and growth from the highly populated Asia-Pacific market.
In addition, Diageo's product diversification mitigates any short-term impact from taste changes and preferences, the most notable one being drinkers switching to spirits from beer for health reasons in crucial markets. Diageo's big push into more expensive brands provides them a comfortable advantage in these inflationary times.
Diageo pays dividends semi-annually, an interim dividend in April and a final dividend in October. The approximate split between the two payments is 40/60. During 1H 2022, the company raised its interim dividend by 5%.
Although we expect the final dividend to also be raised in 2H 2022, Diageo yields ~2% annualized by factoring in just the interim raise. (Please that Diageo pays the dividend in British Pounds, and the payout amount can vary with the US dollar-British Pound rate.)
Diageo is a European Dividend Aristocrat and has set itself up for the 25th consecutive year of dividend growth with its recent raise. The company continues to add value to shareholders with its £4.5 billion buyback program.
Beverage alcohol is an excellent cash-producing business during economic uncertainty, and Diageo is a fundamentally sound leader in the sector. This dividend-growth stock provides a comfortable hedge against inflation and should be part of an income portfolio.
Disclosure: I/we have a beneficial long position in the shares of DEO either through stock ownership, options, or other derivatives.
