Over the last 12 months, the FTSE 100 index has risen by 20%, excluding cash dividends. Over this period, it has beaten the US S&P 500 (up 12.2%). Yet some Footsie stocks have performed very poorly in 2025, such as beaten-down Diageo (LSE: DGE) shares.
Diageo damaged
For decades, Diageo stock has been a stalwart of the London stock market. But since reaching record highs in 2021, this widely held share has crashed by nearly three-fifths.
On 31 December 2021, the shares closed at 4,036p, having soared when the world partied after Covid-19 lockdowns ended. Alas, this stock hasn’t had a decent year since those good times.
On Friday, 7 November, the Diageo share price closed at 1,726.5p, valuing this alcoholic-drinks Goliath at £37.2bn — a fraction of its end-2021 market value. However, things have been worse for shareholders, with the stock hitting a 52-week low of 1,664p on 6 November.
After steep price falls, the shares are down 20.8% over six months and 26.2% over one year. Even worse, they have plunged 34.7% in the last five years, among the FTSE 100’s worst performers over these three periods.
Disclosure: my family portfolio owns Diageo stock, paying 2,780.8p a share in January 2023. Currently, we are nursing a paper loss of 37.9% of our investment, excluding dividends — which we reinvest by buying more shares. That’s one of our worst returns of the past decade.
Dividend dilemma
Then again, the above returns all exclude dividends, which are becoming increasingly generous from this FTSE 100 firm. Today, Diageo stocks offers a cash yield above 4.4% a year — one of the highest in the Footsie.
However, due to weaker revenues, margins, and profits, this payout is thinly covered by historic earnings. The shares trade on a multiple of 20.8 times earnings, delivering an earnings yield of 4.8%. Therefore, Diageo’s dividend is covered below 1.1 times by historic earnings — a marginal level that might indicate cutbacks to come.
Boss battle
Another problem is that the renowned maker of Johnnie Walker whisky, Smirnoff vodka, Baileys Irish cream, Tanqueray gin, Captain Morgan rum, and Guinness stout doesn’t have a permanent chief executive at present. Former CEO Debra Crew stepped down in July and has yet to be replaced. However, finding the right boss is critical, so Chair Sir John Manzoni is taking his time.
Another concern is that alcohol consumption is on a slow decline. For young adults, other activities competing with drinking include social media, video games, and legal (and illicit) cannabis. Also, President Trump’s higher US import tariffs have hit drinks companies hard.
With Diageo shares testing 10-year lows, this British business seems to be enduring a perfect storm. But when there’s blood in the water, sharks start circling. Hence, I suspect a few top private-equity firms might be running the rule over Diageo to thrash out the financials of a takeover.
In summary, this FTSE 100 stock is firmly in the market’s bargain bin right now. The big question is: are Diageo shares a recovery play or a value trap? Only time will tell, so we will keep our shareholding and await developments!
