Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn’t seen a spurt since.

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The current level of the Diageo (LSE: DGE) share price near 3,600p makes the stock look attractive, I feel.

The fast-moving consumer goods business specialises in branded alcoholic beverages. And the valuation has always looked quite full.

But that situation has been improving: the share price has been consolidating for about a year-and-a-half. And it first reached its current level just over 19 months ago.

Value has been building

Meanwhile, the business has been growing. And value has been building up. Indeed, revenue, earnings and the shareholder dividend have all moved higher over the past two years. And City analysts expect further gains ahead.

Yet over the past 12 months the stock price has eased back by around 8%.

It looks like the company has been caught up in the general malaise that’s been affecting stock markets recently. But the situation may be creating an opportunity for investors to consider researching it for a long-term hold.

Earnings look set to rise by about 8% in the trading year to June 2024. And the anticipated dividend yield for that year is running at just under 2.4%. 

That’s not a huge yield, but the business has a decent record of growing the shareholder payment a little each year. And dividend progression continued right through the pandemic, underlining the resilience of the business.

Change ahead

But there’s change coming. A new chief executive, Debra Crew, is due to start in post on 1 July after promotion from the position of chief operating officer. And that’s following the looming retirement of the current chief, Sir Ivan Menezes, who’s been in post for a decade or so.

Change at the top can often work to reinvigorate a business when the new post holder comes in with new ideas and fresh determination to succeed. Therefore, I see the move as positive for shareholders. 

That said, the share price has risen by just over 80% under the outgoing chief. And there’s been a growing stream of dividends for shareholders on top of that capital gain.

Meanwhile, Crew said on 28 March it’s an “incredible privilege” to have the opportunity to lead Diageo through the next stage of its development. And there will be a focus on continuing the effort to build world-leading brands in “the most exciting consumer products category.”

Meanwhile, those brands have the potential to support an investment in the shares. I’m talking about the company’s well-known names such as Johnnie WalkerGuinness, TanquerayBaileys, Smirnoff and many others.

Nevertheless, even quality businesses can suffer from operational setbacks. And despite the lower-looking valuation than previously, it’s possible the share price may move lower or remain near where it is for an extended period.

Indeed, all shares carry risks as well as positive potential. However, my feeling is that it’s a good time to research the business now. And the stock has the potential to make a worthwhile contribution to a diversified long-term portfolio.

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.

Kevin Godbold has no position in any of the shares mentioned. 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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