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Diageo: A Sin Stock Worth a Toast
11/24/2015 7:00 am EST
Some investors aren’t entirely comfortable with 'sin' stocks; but the simple fact is they’re dependable money makers regardless of the economy. The global spirits industry, for example, is increasing their sales despite slowing consumption, observes Benjamin Shepherd, editor of Global Income Edge.
The merger of Grand Metropolitan and Guinness in 1997 is how Diageo PLC (DEO) became a truly global company itself, marrying one of my favorite beers with a major distillery.
Diageo has acquired distilleries and brewers in India, Africa, South America, and Europe, becoming the largest distiller in the world and a leading maker of beer and wine.
Diageo now owns 14 of the top 100 distilled spirits brands in the world, including Gordon’s gin, Johnnie Walker scotch, and Smirnoff vodka, with spirits accounting for about three-quarters of sales.
Although it might not pay the biggest dividend in the world with a yield just shy of 4%, it has the global heft and product diversity to sustain its payout in good times and in bad.
Not only is its yield sustainable, it has grown at an annualized 7.6% over the past five years thanks to growing sales, especially in emerging markets.
Over the past decade, sales grew an average of 4.9%, while earnings per share did an even better 7.4%.
An even more attractive feature of the company’s growth is that it accelerates during recessions—revenue shot up 14.9% in 2009, with earnings up 10.4%—as consumers drown their sorrows.
With a strong presence on every continent, which has allowed the company to buck the trend of slowing alcohol consumption growth, Diageo will continue to expand both its sales and earnings in the years to come.
For income investors, that translates to a growing dividend and we should all drink to that.
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