If you are looking for a FTSE 100 growth stock to including your retirement portfolio, I believe you can’t go wrong with drinks giant Diageo (LSE: DGE).
Over the past two decades, shares in this company have smashed the FTSE 100, returning 310% since 1998 excluding dividends, compared to a return of just 10% for the FTSE 100 — that’s not 10% per annum, that’s 10% in total, a shockingly disappointing return from the UK’s blue-chip stock index.
Including dividends, over the past 10 years, shares in Diageo have produced a total annual return of 10% per annum. Whichever way you look at it, this company has smashed the performance of the FTSE 100.
And I believe this can continue as Diageo builds on its position as the world’s largest spirits business.
Exploding growth
It hasn’t been plain sailing for Diageo over the past five years. Earnings stagnated between 2013 and 2016. However, growth returned with a vengeance in 2017. For the year, earnings per share (EPS) jumped 24%. After taking a breather for fiscal 2018, City analysts expect EPS to leap 19% in fiscal 2019 and then 8% in 2020.
Unfortunately, Diageo’s growth isn’t cheap. Shares in the drinks giant currently change hands for 21 times forward earnings, making the company one of the most expensive stocks in the FTSE 100. The dividend yield is a less than impressive 2.6%.
Still, I believe it is worth paying a premium for this business because the group owns some of the most recognisable booze brands in the world. These brands, such as Johnnie Walker scotch, have been around for decades and have established customer bases. Even though the spirits market is exceptionally competitive, these brands are likely to remain around for many years to come.
All in all, I am confident that Diageo will continue to beat the FTSE 100 making it the perfect investment for your retirement portfolio.
On sale
If Diageo is too pricey for you, Stock Spirits (LSE: STCK) might be a better buy.
The company is a leading owner and producer of premium branded spirits in Central and Eastern Europe, so it operates in the same business as its larger peer. Unfortunately, its small size means Stock does not have the same economies of scale. The business’s operating profit margin is only around a third of that of Diageo.
Nevertheless, it looks cheap compared to the growth the company is expected to produce this year in my view. Analysts have EPS jumping 93% for fiscal 2018, putting the stock on a forward P/E of 13.4. On top of this, the shares yield 4.2%. A trading update issued by the firm today confirmed it is on track to meet estimates, so I see no reason to doubt the City’s estimates.
When it comes to long-term growth, however, Stock’s potential is more uncertain. The company has a mixed growth track record, which makes me think that while near-term growth is set to shoot the lights out, investors could be disappointed over the medium term.
With this being the case, I would rather pay a premium to be part of Diageo’s growth story.
