5. Diageo plc (NYSE:DEO)
Number of Hedge Fund Holders: 30
Diageo plc is a British multinational alcoholic beverage company with its headquarters in London, England. With over 200 brands sold in more than 180 countries, Diageo is the Largest Spirits Company in the World. The company’s portfolio has remarkable breadth across spirits and beer, with brands such as Guinness, Captain Morgan, Johnnie Walker, and Smirnoff etc. Diageo plc (NYSE:DEO) posted a revenue of over $21.58 billion in its last fiscal year ending June 30th 2023, up almost 15% from the previous year. However, the spirits giant has struggled during the first half of the current fiscal year due to an uneven consumer environment, fluctuating exchange rates, and inventory challenges in LAC. The group’s organic net sales declined by 0.6% in the first half of fiscal year 2024, while the organic operating margin also decreased by 167 basis points.
Despite the challenges, the company generated a strong free cash flow of $1.5 billion, up $0.5 billion YoY, and continues to focus on enhancing operational efficiencies and expanding its product portfolio. Moreover, DEO is a Great Alcohol Stock for Dividends, as the company stood up to its reputation as a very reliable dividend payer for decades and increased its dividend by 5%, maintaining its track record of dividend increases since fiscal year 2000.
Artisan Value Fund, an investment management company, stated the following regarding Diageo plc (NYSE:DEO) in its Q4 2023 investor letter:
“Diageo is a global leader in alcoholic beverages with an impressive collection of brands across spirits and beers. The company’s portfolio of over 200 brands provides diversification and allows it to meet consumer trends. A key focus for growth has been premiumization, and today, Diageo’s portfolio is now more heavily weighted toward premium segments. Shares are trading at multiyear trough multiples on fears of growth normalizing after a COVID-induced bounce and premiumization headwinds as some markets are showing consumers trading down to value alternatives. In the near term, margin expansion will likely be constrained, but the company generates meaningful free cash flow and returns it to shareholders through dividends and share repurchases. Over the past five years, Diageo generated £12 billion FCF and returned £16 billion to shareholders. Although spirits are more cyclical than other staples, the company’s growth prospects are better long term, and we believe the current situation has provided us an attractive investment opportunity.”
DEO had 30 hedge fund holders in Q1 of 2024, with Orbis Investment Management holding the largest stake of 1.54 million shares valued at around $229.2 million. DEO is placed among the Top 5 Alcohol Stocks to Buy according to hedge funds.
