I recently explained why Unilever has proved a brilliant buy for my shares portfolio in 2019, as a combination of sliding sterling and broad macroeconomic uncertainty has driven its share price to the stars.
Another one of my big holdings, Diageo (LSE: DGE), has also performed admirably on the back of these very same issues. Its share price has gained a whopping 28% in value since I bought-in last October, as investors have sought security in its dynamite range of much-loved drinks brands, products which keep profits growing even in the toughest of trading conditions.
Indeed, Diageo’s ability to continue thriving was perfectly illustrated in full-year results unpacked a fortnight ago. In them, the Captain Morgan and Guinness owner announced that, thanks to strength across all of its regions, organic net sales leapt 6.1% in the 12 months to June. As a consequence pre-tax profit exploded more than 13% to $4.2bn.
Investing for growth
The firm’s commitment to brand investment has proven key to keeping sales on an upward slant, a drive designed to sustain its products’ allure with the drinks-buying public. And boy, does the business know how to squeeze every last ounce of value out of such expenditure.
Its decision to turbocharge marketing spend in North America (up 11% last year), for example, has helped it to fully capitalise on soaring demand for the fast-growing whisky category. Organic sales of its Crown Royal label soared 6% in fiscal 2019 because of this, though product variants — like the introduction of salted caramel and peach versions — also helped total brand sales fly through the roof.
Diageo is also a master when it comes to keeping its finger on the pulse of the latest consumer trends, and its propensity to exploit them to the fullest is what has made it such a reliable profits grower over many decades. That huge investment in Crown Royal, for example, has been made amid some experts predicting that the global whisky market will swell to a colossal $84bn by 2025.
Big dividends, more share buybacks
But Diageo isn’t just a must-have stock for those seeking solid profits growth year after year. That brilliant earnings visibility gives it the confidence to keep raising the annual dividend, the latest such hike coming in at 5% to 68.57p per share.
And the drinks giant has the financial strength to keep rewarding its shareholders through other means, namely via share buybacks. Free cash flow improved by a further £85m in fiscal 2019, to £2.6bn, a result that’s encouraged it to repurchase $4.5bn worth of shares through the next three fiscal years. And this follows on from the $2.8bn it shelled out last year alone on such purchases.
Now Diageo’s delivered a total shareholder return of 309% during the past 10 years alone and is clearly in great shape to keep rewarding investors handsomely for some time to come. So if, like me, you’re worried about whether the State Pension will pay you enough to retire comfortably, and want to build a big nest egg to protect you from pensioner poverty, I reckon you should follow my lead and load up on the company’s shares today.
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Royston Wild owns shares of Diageo. 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 2019