Beer, Growth And Dividends: I'm Loving Life

Includes: BREW, BUD, SAM, TAP
by: Pey Shadzi

One not-so-well-kept secret of mine is that I'm a huge beer fanatic. Let me just clarify one thing, however: unlike some of my enthusiastic party-loving buddies, I'm into quality, not quantity. In fact I'm so into craft beer that I began making it myself about four years ago, purchasing a 15 gallon kettle, barley, hops, yeast and the whole nine yards. And you know what? I've made some pretty good batches in my days.

Naturally, with such a strong appreciation for quality beer -- as well as quality dividend-paying stocks -- I've married the two hobbies, often searching for reputable beer stocks that pay admirable dividends. As it turns out, there are a number of companies that fit the criteria.

Take Anheuser-Busch InBev (NYSE:BUD) for example. Market cap of $115 billion, annual revenues of nearly $40 billion, approximately 200 brands of marketed beer, such as: Budweiser, Stella Artois, Beck's, Hoegaarden, Michelob, Bud Light and many more. With a dividend yield of 1.3% and a payout ratio of 27%, BUD looks as if it could continue to dish out dividends over the foreseeable future. Though it may not be as primely priced as some would like, having had a run over 18% YTD, the company's financials at least appear reasonable with P/E of 22 and strong reported earnings last quarter but, personally, I'd wait for a pullback if I were looking to jump in.

Or how about Molson Coors Brewing Company (NYSE:TAP)? Market cap of $8 billion, annual revenue of $3.5 billion and a list of strong brands a mile long such as Coors Light, Henry Weinhard's, George Killian's Irish Red, Rickard's Red, Miller Lite, Miller High Life, Blue Moon and many more. TAP's sporting a 3% dividend yield with a manageable payout ratio of 34% and has been making some very smart moves over the recent past. TAP's revenue has outpaced the industry average lately and same quarter sales have risen over 12% since last year. Better yet, the company has a debt-to-equity ratio of 0.26 and has grown its EPS impressively over the past year. I like TAP a lot at these levels and since BUD has a positive alpha over TAP of 19% YTD, I truly believe TAP is undervalued at these levels. I feel comfortable picking up shares at the moment with these prices.

And of course let's not forget about Boston Beer Co Inc. (NYSE:SAM). The iconic brand down about 8% YTD. Market cap of $1.2 billion, annual revenue of $500 million and a reliable, taste-forward list of over 20 types of Samuel Adams beer including: Boston Lager, Summer Ale, Octoberfest, Winter Lager, Irish Red, and many more. Sure, the company hasn't yet decided to offer dividends to its faithful shareholders, but with that said we've seen a 200% return over the last five years. Not too shabby by any means. SAM has no debt and the company's current return on equity exceeds it ROE for the same quarter one year prior. Again, very impressive. Increases in net income, net operating cash flow and a sustained and strong gross profit margin for 2011 sheds light on SAM's ability to remain a profitable company and a formidable player in the industry.

No discussion on this topic would be complete without mentioning Craft Brew Alliance Inc. (NASDAQ:HOOK). I began watching this company when the share price was below $1. I'll spare you the details, but I obviously have bruises from kicking myself now that the price has elevated well above $6 a share; being one of my favorite public breweries, I should have bought the stock. Market cap of $116 million, annual revenue of $150 million and an enviable list of beers, such as Widmer Brothers Beer, Redhook Ales and Kona. This company ranks highest of all the aforementioned companies in terms of product quality and taste. With that said, HOOK is a stock that investors have, more or less, decided to look over despite reporting revenue growth which outpaced its rivals, same quarter revenues which rose by 12% and improved earnings per share. The icing on the cake is HOOK's debt-to-equity ratio of 0.13, indicating managment is doing quite well at keeping debt manageable. Perhaps HOOK is one of those "wild cards," forcing investors to sit on the sidelines, waiting to see what will happen. I'm passing it up due to the fact it doesn't pay a dividend, but I'm fully accepting of the idea that this could be a big mistake.

Sure, I'm fully aware of the fact the beer companies highlighted above might not produce a product superior to my own homebrew. Do I mind? Of course not. In the meantime, I'll continue to invest in the best of the best, allowing my dividends to compound and my net worth to rise appropriately so I can become independently wealthy over the long haul and use my dividends to purchase more beer. Cheers!

Disclosure: I am long TAP.