When buying a stock to fund your retirement, the single biggest factor is longevity. Ask yourself if that stock has proven the test of time, and how likely is it that the stock will still be around in another 20 to 30 years. Really, for a long-term retirement stock, everything else is secondary.
This brings me to Anheuser Busch Inbev SA NV (ADR) (NYSE:BUD). I consider BUD stock to be the single best sin stock to hold in a long-term retirement portfolio.
Sure, BUD plies its trade in a brutally competitive space. “Big Beer” has come under enormous competitive pressure from artisan upstarts, and it’s not uncommon to visit a bar in Dallas and find 17 different local craft beers on tap and not a single national brand. I get that.
But Anheuser-Busch has incredible geographic scale that no consumer brand other than perhaps the The Coca-Cola Co (NYSE:KO) can match. And unlike other sin stocks — such as tobacco or firearms — booze stocks like BUD face a less hostile regulatory environment and more favorable demographics.
BUD Stock Is the Best Sin Stock for Retirement
I’ve been a fan of sin stocks for years because they appeal to my nature as a tight-fisted value investor. Because there are social stigmas with owning stocks in pariah industries — and because many institutional investors don’t want the bad publicity that ownership entails — sin stocks like BUD tend to be perpetually underpriced and tend to pay outsized dividends.
But after years of excessively dovish monetary policy and a global hunt for yield, these conditions aren’t really in place anymore. Tobacco stocks, for example, trade at a premium to the broader stock market … which is utterly absurd.
Barring a quantum shift, such as moving into marijuana sales following legalization, tobacco is dying a slow death, as smokers dwindle in numbers with every passing year. It’s perfectly fine to buy a stock in a declining industry if the price is right. But it’s hard to make that case with tobacco.
Booze, however, is most certainly not an industry in decline. In fact, this is something of a golden age for the industry, as consumer tastes have been moving upscale. While this has been rough on BUD’s iconic brands like Budweiser and Bud Light, the company has adapted by acquiring faster-growing international brands and acquiring a portfolio of craft brewers.
Anheuser-Busch InBev has an entire division dedicated to craft beer dubbed “The High End,” and in fact, in just the past week, BUD acquired the Houston-based Karbach brewery, maker of the Hopadillo IPA, Staycation and a host of others.
Anheuser-Busch changes with the times, and I have no doubt that, 30 years from now, the company will still be around and will still be throwing off a decent dividend to its shareholders.
And about that dividend … I consider a long history of dividend payments another requirement for a long-term retirement stock. The stock market can go decades at a time without earning a cent in capital gains. But a consistently rising dividend allows for buy-and-hold investors to realize a respectable return no matter what direction the market is going.
BUD stock’s dividend is going to look a little strange to a lot of American investors. Remember, Anheuser-Busch became a European company when it merged with Belgian InBev, and European companies generally don’t pay a regular quarterly dividend like American companies. They typically pay a large end-of-year dividend and a smaller mid-year dividend.
BUD stock has raised its dividend every year since its 2009 merger with InBev, and I expect years — if not decades — of at least modest dividend growth ahead. At current prices, Anheuser-Busch stock yields a respectable 3.5% — which makes it one of the highest-yielding stocks outside of the telecom or utilities sectors.
Bottom Line on Anheuser-Busch
BUD stock is not particularly “cheap” at current prices; it trades for about 20 times forward earnings. But then, the entire market is looking pricey these days, so Anheuser-Busch hardly looks uniquely overpriced.
The biggest news for BUD stock is its recent merger with SABMiller. This combined entity will rake in an estimated 46% of total world beer profits, dwarfing all other competitors. But the most attractive element of the deal is its geographic scope.
This sin stock was already the leader in Latin America, but upon taking over SABMiller’s portfolio, it will also be a powerhouse in emerging Africa. This is important for BUD stock’s long-term growth potential, as Africa remains the last real investment frontier of any significant population size.
So, there you have it. In Anheuser-Busch, you get a steady-eddy dividend payer backed by strong emerging market demographic trends. If that isn’t a solid retirement stock and a great sin stock, then I don’t know what is.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he did not have a position in any of the aforementioned securities.