Have £1,000 to invest? FTSE 100 dividend growth stock Diageo could help you retire early

Diageo plc (LON: DGE) could deliver higher dividend growth than the FTSE 100 (INDEXFTSE: UKX) to boost your retirement savings.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The dividend growth prospects of Diageo (LSE: DGE) continue to be relatively impressive. The FTSE 100 beverages company appears to have a strong position in a number of emerging markets, while its exposure to the developed world provides a degree of stability versus some of its index peers.

Of course, it’s not the only dividend growth stock that could be worth buying. A relatively small and risky stock that reported on Wednesday may offer high total return potential over the long run.

Resilient performance

The company in question is Epwin Group (LSE: EPWN). The manufacturer of low-maintenance building products delivered a robust performance in its half-year trading update despite challenging trading conditions. Revenue during the period was better than expected, falling from £149.9m in the first half of the previous year to £142.4m. It was hit by adverse weather conditions, as well as the loss of its two largest customers in the second half of 2017.

Looking ahead, Epwin is expected to deliver adjusted pre-tax profit for the current year in line with expectations. It anticipates a seasonally busier second half of the year, although market conditions are due to remain lacklustre in the near term.

The company’s dividend yield currently stands at 6.8%. Its dividend payments are expected to be covered twice by profit in the current year, which suggests they’re sustainable at their current level. Since the stock trades on a price-to-earnings growth (PEG) ratio of 0.6, it appears to offer a wide margin of safety. That could mean its total return is high over the medium term.

Growth potential

The dividend potential of Diageo remains highly appealing. The stock may have a dividend yield of just 2.5% at the present time, which is 1.3% lower than the FTSE 100’s dividend yield. However, there seems to be significant scope for rapid growth over the next few years.

The main reason is the company’s exposure to fast-growing markets. For example, it has a strong foothold in China, where the size of the middle-class is expected to grow significantly in future years. Higher disposable incomes and an increasingly consumer-focused outlook for emerging economies could mean that the company is well-placed to deliver impressive earnings growth over the long run. And with it having exposure to relatively stable markets across the developed world, it seems to offer an appealing mix of growth potential and resilient financial prospects.

Diageo’s dividend could also be set to rise rapidly due to its dividend cover. Its shareholder payouts are currently covered 1.8 times by profit, which suggests that dividends could grow at a faster pace than profit without becoming unaffordable. As such, the stock seems to offer an encouraging income outlook, which could have a very positive impact on your retirement savings.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens 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.

More on Investing Articles

Investing Articles

I’ve been watching the easyJet share price like a hawk. Here’s what it did last week

Harvey Jones can't take his eyes off the easyJet share price. He thinks it looks good value and ready to…

Read more »

Investing Articles

A £10,000 investment in Nvidia stock 6 months ago is now worth…

Nvidia stock's shown a lot of volatility for a mega-cap company in recent weeks. Dr James Fox explores how an…

Read more »

Investing Articles

4 reasons Ferrari could continue to be a stock market winner

The global luxury goods market may have struggled in recent years, but you wouldn’t guess that from Ferrari’s soaring stock.

Read more »

Investing Articles

5 perfect starter stocks to consider for a Stocks and Shares ISA in 2025

Wondering which shares to buy for a newly opened Stocks and Shares ISA? Our writer thinks these five investments are…

Read more »

Row of terrace houses.
Investing Articles

Thinking about buy-to-let? Consider these UK stocks instead

Owning UK property stocks could be a better way to invest in buy-to-let, though there are drawbacks. Royston Wild explains.

Read more »

Investing Articles

Here’s a plan to target £7,500 a month in passive income

This writer outlines a roadmap that someone could consider taking to try and aim for a substantial future passive income…

Read more »

Young female hand showing five fingers.
Investing Articles

5 FTSE 250 stocks Fools are backing for promotion to the FTSE 100 this year

Can Vistry make an imminent return from the FTSE 250? One Fool thinks so -- read on to find out…

Read more »

Investing Articles

How much would an investor need in a Stocks and Shares ISA to earn a £1,000 monthly passive income?

Christopher Ruane digs into some details as to how an investor could use a Stocks and Shares ISA to enjoy…

Read more »