One FTSE 100 stock I like the look of is Diageo (LSE: DGE). Here’s why I would buy the stock today if I had the spare cash to do so.
Bottoms up!
As an introduction, Diageo is an international premium spirits maker and brewer with origins dating back to the 1700s. Itowns an impressive portfolio of brands. These include Guinness, Johnnie Walker, Smirnoff, and Baileys, to mention a few.
Let’s take a closer look at Diageo’s share price activity in recent times to start with. First off, I can see that it has outperformed the FTSE 100 index over the past five years. Moreover recently, the share price has dropped 3% in the past 12 months. As I write, the shares are trading for 3,386p. At this time last year, they were trading for 3,507p.
Diageo shares have fallen by over 6% since the turn of the year. At the start of the year, they were trading for 3,612p. I’m not worried about the drop — in fact, I consider it an opportunity to pick up cheap shares in a quality business.
The bull and bear case
Starting with Diageo’s bear case, I can understand why its share price has dropped. In my opinion, tough macroeconomic headwinds have contributed to this and many other FTSE 100 stocks have suffered a similar fate. The rising costs of raw materials has impacted Diageo’s production and manufacturing costs, which may be passed down to consumers, impacting performance. Consumers may turn to cheaper alternatives if Diageo increases its prices.
In addition to this, the current cost-of-living crisis linked to inflation can impact demand for Diageo’s products and, in turn, performance and returns. Another point to note is that long-serving CEO Ivan Menezes has departed, which could impact investor sentiment too.
Moving onto Diageo’s bull case, first, I believe its immense brand power and international exposure is one of its strongest assets. Many of its brands are household names, known the world over for their popularity and excellent quality. This can help translate into sales and boosted performance. I also believe no matter the economic outlook, people will still drink. In fact, during tougher times, people often turn to their favourite drink of choice to relax and find some enjoyment.
Next, Diageo has an excellent record of performance, although I am conscious that past performance does not guarantee future performance. I can see it has increased revenue and profit for the past three fiscal years.
In addition to performance, Diageo is an excellent option to boost my passive income through dividends. At present, its dividend yield stands at just under 2.5%. The FTSE 100 average is 3%-4%. I am more impressed with its regular payout record, rather than a high yield that may be inconsistent. It is worth remembering dividends are never guaranteed and can be cancelled at the discretion of the business at any time.
A FTSE 100 stock I’d buy and hold
To summarise, Diageo stands out as a blue-chip stock with some very enticing characteristics that could boost my wealth and holdings.
Despite the current headwinds, I believe Diageo possesses the necessary brand power, market exposure, history, and experience to navigate tough market conditions and continue to perform consistently for a long time to come.
