After an outstanding record of dividend growth, Diageo (LSE:DGE) shares hit the buffers in 2025. And it’s fair to say the FTSE 100 firm is facing some unusually strong challenges at the moment.
Analysts, however, think the firm can get back to increasing its shareholder distributions in the coming years. So, with a 4.15% dividend yield, should passive income investors take note?
Dividend growth
According to the most recent forecasts I can find, analysts are expecting Diageo to get back to growing its dividend per share in the next 12 months. That’s the good news.
The bad news is that growth is expected to be fairly modest for the next few years. For 2028, the anticipated dividend is set to be £1.23 per share – 8% higher than this year’s distribution.
| Year | Dividend per share (£) | Yield |
|---|---|---|
| 2025 | 0.76 | 4.15% |
| 2026 | 0.77 | 4.20% |
| 2027 | 0.79 | 4.31% |
| 2028 | 0.82 | 4.48% |
That translates to an average annual growth rate of 2.67%, which isn’t exactly scintillating. In fact, I think there’s a real danger this might not outpace inflation.
Given this, investors need to think about what the alternatives are. And one of the most obvious is UK government bonds, which come with fixed returns.
Right now, a five-year gilt comes with a 4.08% yield. Compared to this, Diageo’s shares look attractive from a passive income perspective, even with limited growth prospects.
There’s also a question of whether analysts might be underestimating the FTSE 100 firm’s future prospects. And that’s something investors should think carefully about.
Outlook
It’s easy to see why estimates about Diageo’s future dividend growth are so low after it stalled entirely in 2025. The company is in an unusually difficult position at the moment.
Challenges include weak consumer spending, shifting preferences, and the rise of GLP-1 drugs. But while these are ongoing risks, it’s possible analysts could be overestimating them.
In terms of consumer spending, a number of analysts think China could be at the start of a strong recovery. This is a key market for Diageo, especially with its current focus on premium products.
It’s also worth noting that the supply side of the equation hasn’t changed much. The FTSE 100 company’s scale and brand portfolio still give it a big advantage over its competitors.
The GLP-1 issue is likely to be a more durable challenge. But it’s worth noting that Diageo’s core demographic hasn’t been the main market for anti-obesity medication – at least, so far.
Given this, I think the market might be ovestimating the challenges the firm is currently facing. They’re not to be dismissed, but the question is whether the current share price reflects this.
A buying opportunity?
Diageo has historically shown a strong commitment to growing its dividend over time. So the fact its impressive record of consecutive increases has come to an end isn’t to be taken lightly.
It’s fair to say, however, that it’s taken an unusually tough environment to halt its progress. And while some challenges are likely to be ongoing, others look more temporary to me.
The company’s competitive position is still firmly intact and this should put it in a strong position when things improve. So despite modest growth expectations, I think it’s worth considering.
