It's the end of a long hard day in the office, five o'clock finally rolls around, but it's not time to head home yet. For many professionals, when five o'clock rolls around it's time to head to the local bar to enjoy a happy hour with friends and colleagues. Workers look to relax, enjoy good times and laughter, unwind from a long day, and have a few drinks. I'm certainly no stranger to a happy hour and I do enjoy good times and laughter; however, as an investor what I love most about happy hour are the dividends.
Obviously there are no bars out there paying me to come in and have a few drinks (although I'm open to the idea), and I don't get a nickel in my brokerage every time I order a beer. What I'm talking about are many of the great companies that provide for happy hour across America and around the world that return value to shareholders with regular dividends.
In this series we will take a look at a number of the great companies investors can look at to earn money through regular dividends, and maybe enjoy happy hour just a bit more. These beverage stocks are providing shareholders with dividends to quench their thirst for income and capital appreciation.
Part one of this series will focus on companies in manufacturing and distributing Spirits.
Brown Forman (BF.B)
When looking at spirits companies that provide steady dividends it's hard to look beyond Brown Forman. The powerhouse behind Jack Daniel's Tennessee Whiskey and other great brands like Southern Comfort and Finlandia Vodka has been paying dividends for 65 years and has increased its annual dividend payout for the last 27 years. Shares of the stock trade at right around $64 dollars currently and the company has P/E ratio of 25.4. The company has a current payout rate of 37% of earnings. With the company's low payout ratio the dividend appears to be quite safe with significant room to continue to grow.
Earnings per share for BF.B are expected to grow in the high single digits for the next five years, so it appears the company has room to continue to grow. With a market cap of $5.5B and very low debt, BF.B could pursue strategic acquisitions to boost growth and target areas in which the portfolio of brands may not be as strong as the Jack Daniel's brand.
While I like BF.B as a stock, and management has been able to deliver shareholders with consistent returns, I would like to see a P/E ratio below 22 prior to investing. Based on current EPS estimates for this year, the share price would need to come back to $55/share before I would be a buyer.
If Jack Daniel's is not your style maybe you prefer Jim Beam?
Beam Inc. (BEAM)
In many ways, BEAM Inc. is the new kid on the block in the spirits world. Although the brands have been in existence for many years it became its own company in October of 2011 when it was spun off from Fortune Brands (FBHS). Since becoming an independent company, shareholders have been rewarded with a share price increase of nearly 33%. The company has brands across all varieties of liquor with many having names at all price points as well. The company most well known for its bourbon offerings includes top shelf names like Maker's Mark and Booker's, the flagship and middle of the road Jim Beam, as well as bargain brand Old Crow.
Beam Inc. has previous year EPS of $2.12, and is expected to grow earnings 11% over the next year to $2.39. Since the spin-off the company has pursued strategic bolt-on acquisitions (Pinnacle Vodka and Calico Jack Rum), which could immediately contribute to earnings. The company has also seen significant growth in some of its in-house brands, such as Skinnygirl cocktails growing 81%, and Jim Beam and Maker's Mark growing 11% and 29% growth over the past year.
With a forward P/E ratio of 24.3 I would be cautious about entering new positions with BEAM Inc. Currently the company sports a market cap of $9.2B, and could pursue additional strategic acquisitions. I believe the company has the ability to continue with the rapid growth that it has had since becoming independent, and upon fully realizing gains from the acquisitions it has made, the stock should continue to grow. Obviously the company does not have a long history of increasing dividends, but I do believe this is a stock that can and will reward shareholders over the long term.
Maybe whiskey isn't your thing, perhaps you prefer vodka, scotch, tequila, or even a Guinness? If that's the case, Diageo PLC (DEO) could be just the stock for you.
If BEAM is the new kid on the DEO is the bully who lives down the street. With a market cap of nearly $75B the other two simply don't match up to DEO in terms of offerings or revenue. DEO owns the world's best-selling vodka brand (Smirnoff), the world's best-selling scotch (Johnnie Walker), the world's best-selling liqueur (Bailey's), the world's best-selling tequila (Jose Cuervo), and many other power brands across various varieties of all kinds of alcohol.
With operating profit increasing 11% year over year, along with 6% growth in organic sales the company has been able to increase the dividend 8% this year. Along with the nice dividend increase, shareholders have seen the share price climb to nearly $109/share from $75/share one year ago, a 30% increase.
With the advantages of its size and scale, DEO should be able to maintain and continue to increase revenue. With the continued revenue growth, shareholders can expect to be rewarded with more share price growth and dividend increases. While the shares have had a sizable run up over the past year the quality of brands in the DEO portfolio and management's ability to maintain returns can support this increase in share price.
All of these spirit stocks can represent sound long-term investments if investors target them at an appropriate entry point. I would consider building and adding to positions in these stocks on a market pullback.
Stay tuned for part two of this series where brewery stocks will be examined.