4. Diageo plc (NYSE:DEO)
Dividend Yield as of December 29: 3.26%
A British multinational alcoholic beverage company, Diageo plc (NYSE:DEO) ranks fourth on our list of the best FTSE dividend stocks. The stock has dropped by nearly 13% over the past year, largely due to a challenging macroeconomic environment. Despite this, analysts remain optimistic about the company’s growth prospects. Diageo holds leading products in categories like scotch, gin, and vodka. Its large scale allows for substantial marketing investments, ensuring its brands remain prominent and difficult for competitors to displace. In addition, the company’s size provides a strategic advantage, enabling it to acquire smaller competitors and increase their value before they become significant threats.
Diageo plc (NYSE:DEO) reported positive FY24 earnings that were reassuring for investors. The company generated $20.3 billion in revenue, which represented a slight decrease of 1.4% compared to the previous year. The report also highlighted that Diageo either grew or maintained its market share in over 75% of its net sales across measured markets, including 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 been gaining momentum due to its robust cash flow. In FY24, the company generated $4.1 billion in operating cash flow and $2.6 billion in free cash flow, reflecting year-over-year increases of $0.5 billion and $0.4 billion, respectively. With this strong cash position, Diageo returned $1 billion to shareholders during the fiscal year and raised its annual dividend by 5%, bringing it to $1.0348 per share. The stock’s dividend yield comes in at 3.26%, as of December 29.
Of the 900 hedge funds tracked by Insider Monkey at the end of Q3 2024, 26 funds held stakes in Diageo plc (NYSE:DEO), compared with 31 in the previous quarter. These stakes are worth nearly $703 million in total.
