Diageo is the world’s largest purveyor of spirits, and its brands include Johnnie Walker, Crown Royal, Smirnoff and scores more.
Diageo’s branding helps it to generate returns on capital that are consistently three times as high as those of Constellation Brands (see chart). Diageo also has grown its top-line sales by nearly half since 2008 — and the past five years have been rather challenging for most consumer-related businesses.
Much of this growth has been due to high demand from emerging markets, which already constitute 42% of Diageo’s sales and continue to take a bigger slice every year.
As incomes continue to rise in China, India, Latin America and other brand-conscious emerging markets, so do standards of taste. Ordering a premium spirit or offering a bottle as a gift is a sign that you have “made it” in life. This is a long-term macro theme with decades left to run.
I also should add that Diageo is an International Dividend Achiever, meaning the company has raised its dividend for a minimum of five consecutive years. I expect Diageo to continue raising its dividend at a nice clip in the years ahead. DEO currently yields 2.7%.
I won’t say this about too many companies, but Diageo stock is something you can buy and forget. I recommend the stock for your core, long-term portfolio — and I also recommend you take the time to enjoy a bottle of Black Label, preferable with full-bodied cigar.
And if Diageo performs as I expect, use your dividend proceeds to upgrade to a bottle of Blue Label.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long DEO. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.