Searching for top dividend shares to buy during the holidays? Diageo‘s (LSE:DGE) one income star I’ll consider purchasing when I next have spare cash to invest.
Here’s why.
Trading troubles
November’s been another tough month for the Diageo share price. It’s slumped to fresh multi-year lows as worries over interest rates have re-intensified. Beverages makers have suffered badly as higher interest rates have hit sales.
Should you invest £1,000 in M&G right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if M&G made the list?
On top of this, shares across the drinks sector have slumped after China threatened anti-dumping tariffs on European Union brandy shipments. These taxes are designed to prevent foreign competitors selling their wares at unfairly low prices.
As a long-term Diageo investor, I’ve been stung by clinging onto its shares. The FTSE 100 company’s fallen 36% in value in the past two years as sales have slumped.
Net sales dropped 1.4% in the last fiscal year (to June 2024), latest financials showed, as reversing volumes offset the benefit of price hikes.
Reasons to be cheerful
Call me glutton for punishment. But I’m not planning on selling my shares. Instead, I’m considering increasing my stake at the next opportunity.
Okay, Diageo’s downturn has been particularly severe of late. Sales have dried up in Latin America and the Caribbean as drinkers have turned to cheaper labels. It’s also endured falling net sales in North America, Africa, and Asia Pacific.
But it’s proven time and again its ability to rebound from crises. And while past performance isn’t always a reliable indicator of the future, I feel Diageo still has the tools to overcome its current challenges.
With high-margin heavyweight labels like Captain Morgan and Johnnie Walker, it’s well positioned to capitalise on the market recovery whenever it comes. It also has large exposure to fast-growing segments like premium and alcohol-free beverages.
Diageo’s strong track record of innovation also remains in tact, as soaring sales of its Guinness 0.0 non-alcoholic drink shows. Net sales and volumes here more than doubled in the last financial year.
Besides, I feel that the troubles facing the Footsie firm are now baked into its ultra-low price-to-earnings (P/E) ratio of 17.3 times.
This is considerably below its five-year average of 31.1 times.
Let’s talk about dividends
To me, one of Diageo’s greatest attractions is its ability to pay a decent and growing dividend, regardless of tough industry conditions.
And its appeal has improved of late as its dividend yield has leapt.
Even despite last year’s troubles, the firm raised the total dividend 5% to 103.48 US cents per share. In its reported currency — which, since 2023, has been the US dollar — Diageo has now raised annual dividends every year for a quarter of a century.
It’s a trend that City analysts expect to continue, too. And so the dividend yield on Diageo shares stands at:
- 3.5% for financial 2025
- 3.7% for financial 2026
- 3.9% for financial 2027
Pleasingly, Diageo’s near-term yield is about 1% higher than the historical average, reflecting the company’s extreme share price weakness of late. And it provides an added sweetener for potential dip buyers like me.
Despite recent trading difficulties, Diageo remains one of my favourite dividend stocks right now.
