6. Diageo plc (NYSE:DEO)
Dividend Yield as of December 28: 3.15%
Diageo plc (NYSE:DEO) is a British multinational alcoholic beverage company that specializes in Scotch whiskey and other spirits. The stock has fallen by over 11.5% in the past 12 months, as the company has been facing a tough macroeconomic environment. However, analysts are positive about its growth because the company holds leading products in several categories, such as scotch, gin, and vodka. Diageo’s large scale enables it to invest heavily in marketing, keeping its brands top of mind for consumers and making it hard for competitors to challenge its market position. Moreover, the company’s size provides a significant advantage, allowing it to acquire smaller rivals and enhance their value before they pose a serious threat.
Diageo plc (NYSE:DEO)’s FY24 earnings were also encouraging for investors. The company reported revenue of $20.3 billion, which fell modestly by 1.4% from the same period last year. The report also mentioned that the company either grew or maintained its total market share in more than 75% of its total net sales across measured markets, including in the US.
Aristotle Capital Management, LLC made the following comment about DEO in its Q3 2024 investor letter:
“Headquartered in London, England, Diageo plc (NYSE:DEO) is a global leader in the alcoholic beverages industry. The company has a vast portfolio of over 200 well-recognized premium spirits (~80% of FY 2024 sales), beers (~15% and mostly Guinness) and other beverages (~5%) that are sold in nearly 180 countries. Led by its Johnnie Walker brand, Diageo is the world’s largest exporter of Scotch whiskey—its largest category at ~25% of sales—followed by other spirits such as tequila and vodka (~10% each). Diageo also owns a ~34% stake in the premium champagne and cognac maker Moët Hennessy (a subsidiary of LVMH Moët Hennessy Louis Vuitton).
The company is the product of the 1997 merger between Grand Metropolitan and Guinness and the subsequent divestiture of its food-related businesses. M&A continues to be a part of Diageo’s strategy, as regional brands often dominate local markets (which provides further opportunities for mergers and industry consolidation). Over the last decade, Diageo has also meaningfully increased its presence in the rapidly growing tequila market with the acquisitions of Don Julio and Casamigos…” (Click here to read the full text).
Diageo plc (NYSE:DEO) has also been gaining traction because of its strong cash generation. In FY24, the company generated an operating cash flow of $4.1 billion and its free cash flow amounted to $2.6 billion, increasing by $0.5 billion and $0.4 billion on a YoY basis, respectively. With this cash position in hand, the company was able to return $1 billion to shareholders during its fiscal year. It raised its annual dividend by 5% to $1.0348 per share. With a dividend yield of 3.15% as of December 28, DEO is one of the best FTSE dividend stocks on our list.
Insider Monkey’s database of Q3 2024 showed that 26 hedge funds held stakes in Diageo plc (NYSE:DEO), compared with 31 in the previous quarter. The total value of these stakes is nearly $703 million. Among these hedge funds, Orbis Investment Management owned the largest stake in the company.
