Should I buy Diageo shares at £34 and hold them forever?

Diageo shares have moved sideways for the last 12 months. So is now a great time to snap up this high-quality FTSE 100 stock and hold it indefinitely?

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Diageo (LSE: DGE) shares have flatlined over the past year. That’s pretty disappointing considering the FTSE 100 roared above 8,000 points to reach a new all-time high a few weeks ago.

The index has since pulled back, but remains 3% higher than it was this time last year. Yet the Diageo share price remains grounded.

So, is this an excellent opportunity for me to buy the stock today?

A forever-type stock

I think Diageo is an ideal investment to hold in any economic circumstances and forever.

Fund manager Nick Train

One in every 10 pints served in a London pub or bar in 2022 was a pint of Guinness. That was a new record for Diageo’s second-biggest selling brand. And last month, the company raised prices by 12% on its draught beer range, including Guinness.

This tells me a couple of things. One, Diageo owns many unique brands, such as Guinness, that are increasingly popular. And two, the company has pricing power. It can raise prices without harming sales — as and when it needs to — in order to preserve profit margins.

The spirits giant owns over 200 brands sold in more than 180 countries. I’d struggle to walk five yards down any supermarket drinks aisle without encountering a Diageo-owned brand. Johnnie Walker, Smirnoff, Gordon’s, Tanqueray, Captain Morgan, Baileys. The list goes on.

And it recently acquired Don Papa, a super-premium dark rum from the Philippines.

This combination of instantly recognisable brands and pricing power makes Diageo a buy-and-hold-forever stock for me.

Bright future

The company reported its interim results back in January, covering the six months to 31 December. Net sales were up 18% year on year to £9.4bn. This was driven by both healthy organic net sales growth (+9.4%) and favourable impacts from booking revenue in a strong US dollar.

There was growth across all regions, with overall earnings per share (EPS) increasing 15.2% to 98.6p. This metric should trend higher as management continues to sanction further share buybacks. Fewer shares outstanding means a higher EPS figure.

One concern though was that Diageo’s North American sales slowed to just 3% growth, which was less than analysts anticipated. This is the firm’s largest market by far, so there’s a risk overall sales could underwhelm if US consumers continue to tighten their belts.

However, the company is positioned to win long term. Rising global wealth, particularly in China and the wider Asia-Pacific region, should continue to drive sales growth.

Plus, nearly 60% of its revenue now comes from premium or super-premium brands. Management thinks this global ‘premiumisation’ trend is still in its early days — a tantalising prospect for shareholders.

A buying opportunity

The stock now has a forward-looking price-to-earnings (P/E) ratio near 20. I don’t think that’s a ridiculous valuation for such a high-calibre enterprise with many years of profitable growth ahead of it.

Additionally, Diageo has increased its dividend for over 20 years now. I only see shareholder payouts increasing from here, though that’s not guaranteed. The dividend yield today stands at 2.3%.

When I look across my own portfolio, there aren’t many businesses I’m more confident about long term than Diageo. It remains one of my biggest holdings. And if it wasn’t already, I’d make it so today.

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.

Ben McPoland has positions in Diageo Plc. The Motley Fool UK has recommended Diageo Plc. 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.

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