(View part one of this series here: DGI Beverage Companies-Spirits)
We have already examined three top notch spirits companies that can provide meaningful growth and yield to a dividend investor's portfolio, and in part two of this dividend investor's tribute to happy hour we examine a number of beer/brewer stocks investors can look at adding to their portfolios for stability, growth and yield.
Anheuser-Busch InBev (NYSE:BUD):
This Belgian and Brazilian multi-national beverage conglomerate is the world's largest brewer with nearly 25% of global market share. With 14 brands generating over $1B in annual revenue and a complete portfolio of approximately 200 brands, this company is a money making machine.
Shares of BUD trade for $85.94 at the time of this writing, and offer investors $1.56/share in annual dividends. BUD shares have had a great run over the past 12 months, increasing more than 50% from one year ago, and they sit slightly below their 52 week high $88.79 of at this time. Earnings growth over the next five years is projected at 33%, and with a current payout ratio of 35%, the dividend appears well-covered with significant room to grow. The company has taken on strategic acquisitions including the recent acquisition of Grupo Modelo.
With a market cap of $138B and strong projected earnings growth, this stock looks like a great play for the future. When all synergies from BUD acquisitions are realized, the company should experience additional enhanced growth. Companies this big should not be able to grow at these kinds of rates, however, BUD just seems to keep going. With a P/E ratio under 20, a dividend payout ratio of 35%, and strong projected earnings growth, I would look closely at and consider BUD as an investment for the future.
AmBev is an interesting stock to look at. The company, based in Sao Paulo Brazil, is actually a subsidiary of Anheuser-Busch InBev. ABV represents the largest brewer in the emerging market of Latin America, and the fifth largest brewery in the world. Along with beer, ABV is also the largest bottler and distributor of PepsiCo (NYSE:PEP) products outside of the US. At the time of this writing, ABV shares trade for just under $38/share and offer investors a 3% yield. The payout ratio for ABV shares is high, coming in at 83.3% of EPS. With that said, earnings per share are expected to grow by 35% over the coming 5 years.
The company carries very little debt on the balance sheet, and has cash well in excess of long term debt. AmBev offers investors an intriguing opportunity to play emerging market growth. If an investor expects Latin American markets to continue growing and rapidly outpace the growth of the global economy, AmBev could reward shareholders over the coming years.
Given the company's low debt, the dividend does appear to be covered, and the company holds enough cash to cover any short term bump in the road. As a dividend growth investor, I would not be buying shares of AmBev at this time, but as EPS rises, I may need to reevaluate this strategy. At this time, AmBev is not on my list of stock targets.
SAB Miller (OTCPK:SBMRY)
SAB Miller is the second largest brewer in the world behind only BUD, and is also a Coca-Cola (NYSE:KO) bottler. SBMRY has a number of global brands that are the flagships of the company including: Pilsner Urquell, Peroni, Miller Genuine Draft, and Grolsch. SBMRY's stock is up 24% over the last 12 months, but has underperformed over the past three.
SAB Miller has 12 month revenues of $31.3 B, and EPS are expected to come in at $2.12. The stock pays an annual dividend of $0.88 for a 2.00% yield. With a low dividend payout ratio of 41%, the dividend appears to be well-covered by cash flow with room to grow. With $18B in long term debt, the company carries a higher debt load than I like to see. Although long term debt is equal to about 25% of market cap, I feel like this debt load will inhibit SBMRY and its ability to grow at a rate consistent with other major brewers like BUD and ABV.
As an investor, I would look beyond SBMRY to other brewers for better and more reliable capital appreciation, and opportunities for dividend growth.
These are certainly not the only high quality brewers with stock available for purchase, and investors can look beyond the stocks included here to find other great breweries to consider for their portfolios. This list is merely a starting point, and investors looking to make a play on the world of breweries should also consider:
- Heineken (HINKY.PK)
- Molson Coors (NYSE:TAP)
Pure Growth Plays-
The world of wine does not offer many dividend players, however, wine does make up a small portion of the portfolio for some of the spirits companies mentioned in part one of this series (DEO and BF.B). For wine growth stocks that are pure plays on the industry, look at Constellation Brands (NYSE:STZ) and Willamette Valley Vineyards, Inc. (NASDAQ:WVVI)