Friday, February 12, 2010

Diageo (DEO) Dividend Stock Analysis

Diageo plc (DEO) engages in producing, distilling, brewing, bottling, packaging, distributing, developing, and marketing spirits, beer, and wine. The company offers a range of premium brands comprising Smirnoff vodka, Johnnie Walker scotch whiskies, Captain Morgan rum, Baileys Original Irish Cream liqueur, J&B scotch whisky, Tanqueray gin, and Guinness stout. Diageo is an international dividend achiever, which has raised distributions for over a decade.

The company has delivered annualized total returns of 12.4% on average.

Earnings per share have increased by 10% on average since 2000. EPS growth has been aided by a decade of share buybacks, which shrank the number of outstanding stock by a quarter. Emerging markets account for one third of company’s revenues. This is where many brand name consumer companies are currently experiencing growth. In 2009 Diageo earned $4.14/share. Analysts expect the company to earn $4.62 and $5.04 per share in 2010 and 2011 respectively.

The annual dividend payment has been increased by 6.80% on average, which is lower than the growth in EPS.

Return on equity has increased from 22.30% at the beginning of the study period to a very impressive 42% in 2009.
The dividend payout ratio has been volatile, and largely remaining above 50% during our study period. Currently this indicator sits at 55%.

Diageo currently trades at a P/E of 16, yields 4.20% but has a dividend payout ratio of 55%, which is a little bit higher for my taste. Other than that I like the company, the strong brand names it owns and its ability to raise dividends through thick and thin. I never really pulled the trigger on Diageo (DEO) since I analyzed it in 2008. I would try to initiate a position in the company on dips as soon as I have funds available.

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  1. Check out my Diageo dividend stock analysis. I focused on analyzing the UK listed shares instead of the ADRs. This gives you a clearer picture since the FX volatility is removed. The dividend growth of the UK listed shares is much more evident.


  2. You may have notcied the recent dividend cut by DEO, currently yielding 2.7% at a 53% payout ratio. Although it looks like in the TTM the earnings are up over 2009 (and 07) but under 2008.

  3. Aaron,

    If you look at Diageo's dividend history page you would notice that they have not cut theri dividend over the past deceade.

    Your confusion might stem from the fact that the interim dividend is lower than the final dividend. The other confusing part might be that Diageo dividends are paid in british pounds, whose exchange rate fluctuates relative to the US dollar.

  4. Thank you for the clarification; that was a true oversight on my case! Happy to have a well seasoned mentor. Why I'm a devoted reader of the blog.


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