Investing In The Wine And Spirits Sector
Of all the consumable beverages it seems that alcoholic drinks are particularly recession resistant. In fact, one full year into the last recession in 2008, alcohol sales actually grew by 9%. It seems that people might be quick to cut spending on luxury items, however, imbibing seems to be a relatively affordable expense people are willing to continue to spend on.
Alcoholic consumption accounted for a whopping $198 billion in sales in 2012 which translates to 9.4 billion gallons worth of alcoholic beverages. Of course, being a dividend growth investor I am most interested in the companies that can pay reliable and growing dividends within a particular sector. With that being said, let’s examine some of the popular dividend paying companies in the wine and spirits sector.
First up is Brown-Forman Corporation (BF-B). A company whose products most everyone is familiar with producing such popular brands as Jack Daniel’s, Southern Comfort, Finlandia, Antiguo, el Jimador, Canadian Mist and Korbel Champagne among many others. Currently yielding 1.35% with a moderately low payout ratio of 39.3% based on an EPS of 3.21, BF-B has a very impressive dividend raise history going back three decades. In fact, the ten year annualized dividend growth rate for BF-B stands at a very healthy 9.61%. From a valuation perspective this stock has a current PE of 29.6 which is slightly higher than its five year average. Forward PE looks slightly better at 26.0.
Looking to get in on the ground floor of a new dividend payer? Why not consider Constellation Brands Inc. (STZ). STZ owns a large portfolio of top wine and spirit brands including Robert Mondavi Wines, Manischewitz, Arbor Mist, Svedka, various Canadian whiskey brands and much more. Just this month the board of directors of STZ announced the initiation of a dividend payable to shareholders on May 22, 2015 to stockholders of record as of the close of business on May 8, 2015. Based on this announcement the current yield for STZ is a relatively low 1.02% with a targeted payout ratio of 25% – 30%. The current PE of STZ stands at 31.2 which is well above its five year average of 15.9. It seems that the recent announcement of a dividend initiation has sent share prices running higher and faster than current cash flow. Forward PE looks slightly better at 25.2 but by most measures this stock seems a bit expensive at current prices. Is STZ another dividend aristocrat in the making? Only time will tell.
For an international dividend play in the wine and spirits sector you might want to consider Compania Cervecerias Unidas S.A. (CCU). Based in Santiago, Chile, CCU has operations in Chile, Argentina, Bolivia, Colombia, Paraguay and Uruguay producing, bottling and selling dozens of wine and alcoholic brands as well as non-alcoholic beverages. Currently yielding a decent 2.31% with a moderately low payout ratio of 36.5% based on an EPS of 1.08, CCU has plenty of room to maintain and raise its dividend going forward. Of course, being a company based in Chile, you run the risk of fluctuating dividend payments because of currency conversions and the relative strength and weakness of the Chilean Peso compared to the U.S. dollar. Even with currency fluctuations CCU still maintains a healthy ten year annualized dividend growth rate of 8.19%. From a valuation perspective CCU has a current PE of 20.5 which, like the other companies mentioned earlier is above its five year average of 16.8. Forward PE for this stock is even higher at 36.2. Seems like the entire wine and spirits sector is trading at a premium.
Finally, one of the most popular wine and spirits dividend stock that really needs no introduction, as it’s stable of brands is beyond impressive, Diageo plc (DEO). Finding its way into most dividend growth portfolios, DEO controls many iconic brands which include Johnnie Walker, Crown Royal, J&B, Baileys, Smirnoff, Captain Morgan, Guinness, Tanqueray, Cîroc, Ketel One vodka, and Don Julio among many others. Based in London, U.K., DEO has a healthy current yield of 2.94% with a moderate payout ratio of 62.0% based on an EPS of 5.42. Being an international dividend play, DEO, like CCU has a currency risk when it comes to dividend distributions as a stronger U.S. dollar can impact dividend payments. That being said, DEO still has a stellar record of increasing dividends and has proven to be a solid payer even during the financial crisis several years ago. The ten year annualized dividend growth rate of DEO is a respectable 7.0%. The current PE of DEO stands at 24.6 which is above its five year average of 19.1. Forward PE for this stock is even higher at 77.8.
Clearly the wine and spirits sector has some interesting dividend plays that can no doubt add an additional layer of diversification to your dividend growth portfolio along with added stability as this sector tends to be very recession resistant.
Are any of the companies mentioned above in your dividend portfolio? Please let me know below.
Disclosure: Long DEO
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