Image source: Getty Images
Why do I keep investing in FTSE 100 stock Diageo (LSE: DGE)? Well, I like a lot of quality stocks in my Stocks and Stocks ISA. But I also like income stocks for returns through dividend reinvestment, and growth stocks for appreciable capital gains as well. But naturally I am cautious, so low volatility and defensive stocks are also seen. Diageo does a little of everything.
The Diageo dividend
Diageo’s forward dividend yield of 2.32% is below the FTSE 100 average of 3.7%. But his record is exemplary. Diageo has paid a growing dividend over the last 10 years. Analysts have forecast further dividend increases for 2023 and 2024. Diageo is a Dividend Aristocrat stock.
Dividend growth has consistently been in the mid-single digits or higher, except during the pandemic years. And future payouts to shareholders also look certain, with coverage based on analyst consensus estimates exceeding two for 2023 and 2024.
Focus on quality growth
Diageo’s share price has risen 447% in 20 years, from 650 pence to 3,557 pence today. That’s about 9% in capital gains each year on average. before dividend yield is added. The company’s financials have also followed a similar trend, which tells me that the growth in stock price was justified.
In 2003, Diageo posted revenue of £8.21 billion. A decade later it was £11.3bn. Analysts expect revenue of £17.3bn by 2023. Yes, there have been bumps and periods of slow growth along the way, particularly in 2020 and 2021, but the overall trend is decidedly up. And this is a quality business: its operating margins have been constant at around 28% for the past half decade, and its return on equity has increased from 26% in 2018 to 44% in 2022.
A defensive FTSE 100 stock
The FTSE 100 stock with the lowest daily volatility is reckitt at 1.55% (which I have). Diageo ranks ninth with 1.87%. All of the companies in the top 10 are defensive consumer or utility, save for one oddity in the form of Chill out—a cyclical of consumption, which I also own. All of these types of companies share the characteristic of selling things that consumers need or are loathe to cut down on when times are good or hard. Therefore, its revenues, and generally earnings, tend to be relatively stable throughout the economic cycle and that generally helps cushion the volatility of its stock prices.
But Diageo is not a perfect stock. It’s expensive right now with its P/E ratio of 20.5, which is high for its industry and compared to the broader market. Considering expected 6.7% EPS growth for next year, that doesn’t look like growth at a reasonable price either, based on its PEG ratio of almost three. However, this is something I will continue to invest in. If I was only interested in growth, maybe I would avoid it. But as I’ve said, Diageo also offers income and other qualities that continue to justify its inclusion in my portfolio.
var config = {
apiKey: ‘1ed121d592e04642d57912bb369ef696621661a3’,
product: ‘PRO_MULTISITE’,
logConsent: false,
notifyOnce: false,
initialState: ‘NOTIFY’,
position: ‘LEFT’,
theme: ‘DARK’,
layout: ‘SLIDEOUT’,
toggleType: ‘slider’,
iabCMP: false,
closeStyle: ‘button’,
consentCookieExpiry: 90,
subDomains : true,
rejectButton: false,
settingsStyle : ‘button’,
encodeCookie : false,
accessibility: {
accessKey: ‘C’,
highlightFocus: false },
onLoad: function () { // hide Cookie Control recommended settings button.
var recommendedSettingsButton = document.getElementById(‘ccc-recommended-settings’);
if (recommendedSettingsButton) {
recommendedSettingsButton.classList.add(‘hide’);
} },
text: {
title: ‘Privacy Notice’,
intro: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
necessaryTitle: ”,
necessaryDescription: ”,
thirdPartyTitle: ‘Warning: Some cookies require your attention’,
thirdPartyDescription: ‘Consent for the following cookies could not be automatically revoked. Please follow the link(s) below to opt out manually.’,
on: ‘On’,
off: ‘Off’,
accept: ‘Accept’,
settings: ‘Cookie Preferences’,
acceptRecommended: ‘Accept Recommended Settings’,
notifyTitle: ‘Privacy Notice’,
notifyDescription: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
closeLabel: ‘Save Preferences and Close’,
accessibilityAlert: ‘This site uses cookies to store information. Press accesskey C to learn more about your options.’,
rejectSettings: ‘Reject All’,
reject: ‘Reject’,
},
branding: {
fontColor: ‘#fff’,
fontFamily: ‘Arial,sans-serif’,
fontSizeTitle: ‘1.2em’,
fontSizeHeaders: ‘1em’,
fontSize: ‘1em’,
backgroundColor: ‘#313147’,
toggleText: ‘#fff’,
toggleColor: ‘#2f2f5f’,
toggleBackground: ‘#111125’,
alertText: ‘#fff’,
alertBackground: ‘#111125’,
acceptText: ‘#ffffff’,
acceptBackground: ‘#111125′,
buttonIcon: null,
buttonIconWidth: ’64px’,
buttonIconHeight: ’64px’,
removeIcon: false,
removeAbout: false },
necessaryCookies: ( ‘wordpress_*’,’wordpress_logged_in_*’,’CookieControl’,’PHPSESSID’,’fivc’,’fivs’,’fivp’,’Ookie’,’Fool_subinfo’,’_gads’,’_gid’,’_gat’,’_ga’,’__utma’ ),
optionalCookies: (
{
name: ‘Sharing’,
label: ‘I would like content tailored to my personal preferences.’,
description: ‘We work with advertising partners to show you ads of products and services you may be interested in. You can choose whether or not to have ads delivered in a personalised way by setting this option. You can return to review this setting at any time by clicking the "C" logo in the bottom left corner of any page.’,
cookies: ( ‘_ga’, ‘_gid’, ‘_gat’, ‘__utma’, ‘_gads’ ),
onAccept: function () {
// Add Facebook Pixel
!function(f,b,e,v,n,t,s)
{if(f.fbq)return;n=f.fbq=function(){n.callMethod?
n.callMethod.apply(n,arguments):n.queue.push(arguments)};
if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;
n.queue=();t=b.createElement(e);t.async=!0;
t.src=v;s=b.getElementsByTagName(e)(0);
s.parentNode.insertBefore(t,s)}(window,document,’script’,
‘https://connect.facebook.net/en_US/fbevents.js’);
fbq(‘init’, ‘901682110316659’);
fbq(‘track’, ‘PageView’);
fbq(‘consent’, ‘grant’);
// End Facebook Pixel
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, true ) ;
},
onRevoke: function () {
fbq(‘consent’, ‘revoke’);
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, false ) ;
},
recommendedState: ‘on’,
lawfulBasis: ‘consent’,
},
),
statement: {
description: ”,
name: ”,
url: ‘https://www.fool.co.uk/help/privacy-and-cookie-statement/’,
updated: ”
},
};
CookieControl.load(config);
