Diageo (LSE: DGE) is a British multinational alcoholic beverages company with offices in six continents around the world. Formed in 1997 as a result of a merger between Guinness Brewery and Grand Metropolitan, some of Diageo’s brands now include Baileys, Guinness, Crown Royal, Johnnie Walker and Smirnoff. Its products are sold in more than 180 countries around the world, cementing the firm as one of the most trusted and respected consumer products companies in the world.
The North American region is Diageo’s largest market in terms of net sales, but it is worth noting that operating profits have increased by 44% in Africa, 24% in Asia Pacific, and 19% in Latin America from 2018 to 2019, which demonstrates the ability of the company to infiltrate into the markets of many emerging economies where there is high demand.
Since flotation on the London Stock Exchange in 1995, the stock has delivered around a 587% return in price appreciation alone, never mind with dividends factored in! Over the years, Diageo’s growth has been immense and continuous, as any price chart will demonstrate. Taking a closer look, over the past five years the share price increased by 62%, demonstrating both historic and recent strong performance. However, can the company continue with this rate of growth into the future?
Despite Diageo’s recent announcement that annual sales growth would be at the low end of its guidance, the financial services company Kepler Cheuvreux announced a price target of 3,700p for the company in early February, demonstrating that the future looks bright when it comes to the prospect of further growth in Diageo’s share price.
In addition to this, Diageo has shown innovation throughout its product ranges. From the traditional beer, wine and soft drink sales, Diageo has expanded to take advantage of further consumer trends.
It is well worth noting that since reaching an all-time high in September of last year, shares in the company are now around 15% lower in value than they were then, meaning that now is a good time to buy for a comparatively lower price.
Moreover, a lower share price means a higher dividend yield, which can be reinvested back into the market. Diageo has a proven track record at delivering, and this is displayed through the 0.94% increase in revenues from 2017 to 2018, and an even greater 5.8% increase from 2018 to 2019.
Diageo remains a global leader in the industry and delivers reliably good returns for shareholders on the money it invests and with. What is more, as a consumer staple, the defensive nature of Diageo shares means that they should prove steady in any economic volatility, and in my opinion, ultimately proves to be a strong buy for 2020 and beyond continuing with great prospects of further growth.
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Matthew Dumigan has no position in any share mentioned. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020