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
Image courtesy of: Sira Anamwong at FreeDigitalPhotos.net
41 thoughts on “Dividends To Lift Your Spirits”
Those are some interesting dividend plays. I do not have any of those stocks. But, I will have to consider diversifying into that sector. I don’t think people are going to stop drinking any time soon. Thanks for the good recommendations.
Financial Forager recently posted…Recent Dividend Stock Purchase Emerson Electric
There’s no question that alcohol is a very recession resistant consumable and that people will continue to spend on this sector no matter how good or bad economic times are. I’m sure you will notice that DEO is one of the more popular names to be found in most dividend growth portfolios for this exact reason. Thank you for stopping by and commenting.
Eventually I’d like to add one of these companies to my portfolio. I’d probably lean more towards BF-B or DEO because there’s more of a history with dividend growth. I’m surprised you didn’t include BUD in this list. I think it’s more beer related rather than wine/spirits but I think their a solid company as well. Thanks for the list.
JC recently posted…Can Becton, Dickinson & Company Cure Your Portfolio?
For this article I wanted to focus on the wine and spirits dividend players but a beer theme is in the works for this month as well. Clearly the big two dividend plays in this sector is BF-B and DEO. It will be interesting to see how STZ will fare in the coming years as it is a new dividend payer. Between BF-B and DEO you can control almost every major wine and spirit brand in each respective category. Kind of amazing to think that just two companies pretty much control the entire sector. As always I appreciate your comment.
Thanks for putting this together. Spirits are a great investment – esp for us dividend investors. I dont own any, but keep an eye on them – their valuation is not agreeable to me…so, I will stay away for now.
Roadmap2Retire recently posted…Chatter Around the World – 91
Part of the problem we all face these days is a high valuation for many consumer staple names including the wine and spirits sector. While a great and recession resistant investment, proper price/valuation should be met before initiating a purchase. I know many dividend bloggers that are still dreaming of owning, CL, CLX and other consumer staple names but have resisted because of sky high valuations. Keep an eye on some of these names and I’m sure there will be a time when price/valuation makes more sense. DEO is still my favorite from the bunch. Thank you for sharing your thoughts.
I’ve done well with DEO. It should beat the market for decades.
Financial Velociraptor recently posted…Hold NIO Buy Nuveen AMT-Free Municipal Incom (NEA)
Thank you for sharing your experience with DEO. It is a great name that controls such a huge portion of various spirit categories. It definitely is a stock that has the making of a long term investment. Thank you for stopping by.
Your post make me thing about this sector, which was not part of our strategy but it make sense. Will start looking at options.
Retiredat50 recently posted…Monthly grocery bill
Glad to raise some awareness for you regarding this sector. One of the great things about this space is that it is very recession resistant and has a couple players that have very extensive dividend histories. While scanning the various dividend blogs I think you will notice DEO has a place in many portfolios including my own. Thank you for stopping by and commenting.
With safety of this sector in sales (alcohol tends to be recession proof) comes a low dividend yield and a high P/E ratio. As you mention to other commentors though, a lot of the consumer staple companies have been pushed up to high valuations.
Pullingmyselfup recently posted…SHARPE INCOME … A Large Capital Contribution
I think in this market everyone is looking for relative safety as we all wait for the inevitable correction to occur. With that look for safety a lot of the consumer staples and other defensive names get bid up and thus, as you mentioned, results in lower yield and higher prices and valuations. Sometimes you just have to pay up for relative safety and quality. Thank you for sharing your thoughts.
They all seem like nice plays and who knows if STZ will be a champ. However, they are all darn expensive right now. Wish I had a Guinness to make up for my disappointment!
As mentioned in a previous comment I think that defensive names, such as consumer staples, have all been bid up because they seem to be the only names to offer relative safety. As those names get bid up, valuations go higher and yield gets pushed lower but sometimes that’s the cost for some peace of mind. It will be interesting to see if STZ can follow in the footsteps of DEO and BF-B. Thank you for stopping by and commenting.
Great list of stocks. I like DEO there as well and in my watch list currently. It has attractive yield and an impressive dividend growth. Thanks for sharing!
FrugalityToFinancialFreedom recently posted…March Portfolio
It seems that DEO is the favorite among many of the dividend bloggers. I know I have been happy holding it in my portfolio all these years. While the current yield is attractive and it does have an impressive dividend growth rate, the valuation seems a little too rich at current levels but as I mentioned in other comments sometimes you have to pay a little extra for quality. JNJ is a name that comes to mind that rarely goes on sale just like CL and CLX. As always, I appreciate your comment.
DEO caught my interests but at current PE ratio, it seems a bit high to me. In fact, all of these companies that you listed are a little high in PE for me to take a serious look at them. Perhaps we should be looking at the PEG ratio instead to see what kind of future growth can be had for these stocks.
Tawcan recently posted…Dividend Income – March 2015 Update
Your comment seems to echo the sentiment of many who love DEO but not at current valuations even though it has a pretty decent current yield. I think that this sector has to be considered for its relative safety in down markets and for being very recession resistant. While DEO nor any other name mentioned might be the greatest buy these days they can offer stable dividend payments during economic downturns. Thank you for stopping by and commenting.
Great article. Thanks for giving us a look at this industry. Everyone seems to be in the same boat–starving for yield but fearful of high valuations.
The Professor recently posted…Asset Classes Available to Investors
Happy to have highlighted this recession resistant sector for you. I always say that sometimes you have to pay up for quality names. DEO has a great yield and though expensive always seems to have a premium attached no matter if we are in good or bad economic times. I just mentioned in another comment that other consumer staple names such as CL and CLX also seem to never go on sale and sport high valuations. Thank you for sharing your thoughts.
Good breakdown of this sub sector. DEO is in my portfolio and look forward to many years of dividends. Thanks for sharing.
HMB recently posted…Recent Stock Buy
The wine and spirits category is a real stable sector that is often overlooked. Perhaps it’s that stability that makes it look kind of boring but for my taste it suits me just fine. Happy to be a fellow DEO shareholder with you. It’s a name that I plan to keep for many, many years to come. Thank you for your comment.
I love the industry. These brands aren’t going anywhere and as you pointed out, are recession proof. Lanny and I both hold DEO and I am considering investing more in the company. I love the strong brand recognition of the company’s portfolio and compared to others in the industry, the yield is impressive compared to its peers and the payout ratio is reasonable. But I don’t think you could go wrong with any of the companies in the industry!
Dividend Diplomats recently posted…Bert’s Quarterly Goal Review
There sure is a lot to love about this industry. It’s similar to the waste disposal business as both are very recession resistant. DEO has been my go to spirits dividend stock as its stable of well known brands are number one in many respective spirit categories. I am still curious to see how STZ will perform from a dividend perspective in the coming years too. Of course, I’m happy to be a fellow shareholder of DEO with you and Lanny. Thank you for stopping by and commenting.
I finally pulled the trigger and bought Diageo earlier this month. True the valuation is on the expensive side but I don’t know how long I’d have to wait until it dropped (if it does drop in the near future?), so I’m just glad that they’re now part of my portfolio!
weenie recently posted…Why Losing My Job Was the Best Thing That Happened To Me
Happy to be a fellow shareholder with you in DEO. Sometimes you have to just bite the bullet and make a buy even though valuations may not be the best. The reality of being a dividend investor is that we want our capital working for us as soon as possible to get that dividend compounding working for us as soon as possible. Thank you for stopping by and commenting.
Thanks for the overview.
Out of curiosity I just looked at Heineken (I’m still a proud Dutch guy). At the end of 2014 their dividend yield was about 1,87% with a payout ratio of 41.7%, They had a PE ratio of 22.41. May be an interesting buy with the strong US dollar at the moment. Albeit the stock has surged quite a bit in the last year, making it relatively expensive.
Mr. FSF recently posted…Motorcycles and Expenses
Based on the numbers you mention Heineken might look like an interesting play. Quite honestly I never took a serious look at it and not sure it trades on any U.S. exchanges which means tax considerations must come into play. There’s little doubt that putting money in alcohol related stocks is a very stable investment with defensive properties and good dividend yield as well. Thank you for sharing your thoughts on HEIN.AS.
I don’t hold any stocks for spirits or tobacco. Not against either per se, but won’t invest in either for personal reasons. No, I’m not trying to start a controversy, I have no problems with others investing in legal enterprises, they just aren’t my thing.
My latest investments are in my blog (yep, trying to get it going). http://investingandotherstories.blogspot.com/
You are not alone in deciding not to invest in spirits or tobacco for personal reasons. No controversy here everyone invests for different reasons. Thanks for sharing your blog update as well. Finally, we get to see first hand what you are buying and holding. As always, I appreciate the comment.
As always, thanks for these quick industry snapshots! I’m extremely bullish on alcohol, so always love seeing any new ideas I’ve missed in my research. I remember STZ, and remember passing because of the lack of dividend. I didn’t know they announced a new one, so maybe it’s time I take another look? Who knows? Thanks!
It’s a solid and reliable sector to invest in for sure. Many dividend growth investors own DEO or BF-B already and know of their resilience during economic downturns. STZ just announced a dividend this month. I am curious to see how the dividend will perform over the coming years. We may have another DEO in the making. Thank you for stopping by and commenting.
This has always been a very interesting sector for me. I love a business model where people still go to it even if they have suffered financial difficulties.
A little-known Canadian player that I own is Corby Spirit and Wine Ltd. (CSW.B). I picked up my shares a few months ago based on the company paying close to 3.5% in dividend yield while having no debt. Its dividend growth history isn’t spectacular but it pays a special dividend every few years as cash accumulates from operations.
– Ryan from GRB
GetRichBrothers recently posted…$1,000 Freelancing In a Month: How I Did It
Thanks for sharing your holding in Corby Spirit and Wine Ltd. (CSW.B). I have never heard of this company but based on your assessment it does look interesting though I would like to see a better dividend growth history with any stock I potentially buy. I think this sector, like tobacco, has its merits for long term reliability and can add a layer of safety to any long term dividend growth portfolio. As always I appreciate your comment.
I don’t hold any of them. The sector is interesting and quite safe, but the PE ratio is too high on all and the yield is too low for my linking as well. I don’t mind picking lower yield when it means quality and growth potential, but I would definitely have to dig deeper into the numbers to see if these are worth it.
DivGuy recently posted…12 Month Countdown to Financial Freedom
I totally understand where you are coming from regarding valuations in this sector. The truth is that this sector rarely goes on sale and for good reason. Sure, there are better times to buy but I don’t recall any of these stocks ever going into the bargain bin. The yield of DEO seems compelling and it does have a long history of dividend growth which is why it’s in my current portfolio. Thank you for stopping by and commenting.
DH, thanks for the list. The only company I have on my watch list isn’t DEO – so I will research the other ones. I think DEO will have a good entry point if it drops just a little more.
Div4son recently posted…FAST Dividend Stock Analysis
From this overview it’s clear that all the stocks mentioned are slightly overvalued. That doesn’t mean they are bad businesses it just shows you that people are willing to pay up for decent yield and stability in tough economic times. I added to my DEO a few months ago but, like you, I’ll wait for a little better pricing going forward. Thank you for stopping by and commenting.