Smirnoff, Gordon’s, Tanqueray, Captain Morgan, Crown Royal, Seagram’s, Goldschlager, Jose Cuervo, Guiness, Red Stripe, Johnnie Walker…the list goes on and on. So what do all these alcohol brands have in common? They’re all owned by my favorite liquor company, Diageo (NYSE: DEO).
First off I want to state it’s not my emotional connection with Diageo’s top brands that make me want to be an investor of this company, and neither should this be a sole reason for you to invest. Why I like Diageo so much is that it’s a well-run business from top to bottom (market cap of $44 billion, revenue of $17 billion, profits $9.54 billion). I mean, what’s not to like? Diageo boasts eight of the world’s Top 20 liquors. It has a range from top of the class liquors such as Johnnie Walker, to your college boy’s choice, Captain Morgan.
The company has continued to grow over the past year especially in emerging markets, as sales are up +15% in emerging markets alone. In addition, Diageo boasts an outstanding 40% return on equity, which is usually a good indicator on profitability per dollar spent. Diageo has had strong and consistent revenue numbers throughout the past year, raking in $17 billion with a total profit of $9.54 billion. Another plus that makes Diageo stand out from the crowd is the fact that it has a strong upper management team, part of the reason the business continues to run both efficiently and effectively. The numbers above are clear indicators of that. Going forward, I expect earnings to continue to grow as consumer spending increases and as more consumers start to purchase those more expensive labels again. Another plus is the fact that Diageo holds a 4% dividend yield.
Overall, I believe Diageo will continue to grow due to it’s portfolio of top liquor brands, strong cash flow, and an attractive dividend, making it an attractive investment. Take a shot on Diageo, it will be worth it. In 12-months I expect the stock to be trading around $95 per share and have a total yield of 16%. Top on a 4% dividend yield and we have a solid annual return of 20% for DEO making it both a safe and strong investment.
Disclosure: I am long DEO.