Diageo Is In Strong Spot; Company Raises Dividend

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A strong industry group and sector can be helpful to a stock.

U.K. alcoholic beverages makerDiageo ( DEO ) is in a good spot. As of Friday's IBD, Beverages-Alcoholic was No. 12 of 197 industry groups. The sector was No. 4 of 33 sectors.

The company has top-notch brands. Many are world leaders in their categories, including Johnnie Walker in scotch whisky, Smirnoff in premium vodka, Baileys in liqueur and Guinness in stout.

Diageo has a long-term distribution deal with Jose Cuervo, but that ends in June. Market watchers are speculating that Diageo is in negotiations to buy a minority stake in the Mexican tequila maker, but Diageo has not commented.

Acquisitions are a part of Diageo's strategy. For example, in August 2011, Diageo bought Mey Icki, the largest spirits company in Turkey. Last year, Diageo announced an agreement to acquire the Ypioca brand in Brazil.

On Thursday, the big-cap company released preliminary results for the fiscal year ended in June.

Net sales grew 6%, but growth was 15% in emerging markets. About 40% of Diageo's business is in emerging markets.

CEO Paul Walsh said in a press release that he and his team were recommending the board raise the full-year dividend 8% to 43.5 pence, or about 69 cents.

Diageo has a complicated dividend structure.

The dividend is translated into U.S. dollars, but each ADS share represents four ordinary shares. So, 69 cents is quadrupled to roughly $2.76 for the ADS payout.

The dividend is paid twice a year in the form of an interim dividend and a final dividend. About 40% of the total dividend is paid as the interim dividend and 60% as the final dividend. The payments are made in April and October.

For ADS shareholders, the current annual yield is 2.5%, assuming the board approves the increase.

The stock's Composite Rating is 94 and its Sales + Profit Margins + ROE rating is A.

Earnings increased 18% and 17% in the past two fiscal years. The Street expects 12% EPS growth this year. The five-year earnings Stability Factor is 9 on a scale of 0 (calm) to 99 (erratic).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Investing Ideas

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