Why Diageo plc Is A Great Share For Novice Investors

Last Friday I told you why I think Unilever is a great investment candidate for novices, and I’m going to end this week with a look at another company that has the same multi-brand approach to its markets.

Fancy a glass of wine with your dinner? How about a Blossom Hill Californian red? Or if you’re dining with 007, maybe a bottle of Dom Pérignon? And after dinner, a drop of Hennessey might go down well.

Or are you at the pub enjoying a pint of Guinness? If you fancy a chaser with it, how about Bell’s, Johnnie Walker or Bushmills? Or if you’re a single malt drinker, maybe a snort of Lagavulin or Talisker might hit the spot. And if whisky isn’t your poison, there’s always Gordon’s or Tanqueray gin, Smirnoff vodka, Captain Morgan rum… or even Baileys if you must.

You’ve guessed…

Yes, they’re all Diageo (LSE: DGE) (NYSE: DEO.US) brands, and even if they might not make the “must buy” shortlist that so many of Unilever’s household products find themselves on, you must surely agree they add up to a lot of big-brand attraction.

And that attraction has brought steadily-rising sales year after year, leading to rising profits. Earnings per share (EPS) has risen in double-digit figures for each of the past three years with 11% for the year to June 2013, and analysts are currently forecasting a further 9% for 2014.

The dividend has been growing too, and the rate of growth has been increasing. For 2010, the dividend was lifted by 5.5% to 38.1p per share, and that’s gone steadily upwards until this year brought a 9% boost to 47.4p.

The dividend yield has actually been falling, from around 4% in 2009 to 2.5% this year and a forecast 2.6% next. But that’s been entirely due to a rising share price — at 2,040p today it’s up nearly 20% over the pat 12 months, and since mid-2009 it’s risen 2.8-fold. So while the yield might not be high, it is more than twice covered by earnings, and the resulting combination of price growth and income has been pretty impressive.


Some of the safest companies have global reach — and Diageo scores there, too. Much of its whisky and other spirit production is sold in Asian markets, and it has a pretty big presence in emerging markets too. In fact, only 16% of Diageo’s turnover comes from Western Europe. North America is the biggest with more than 25%, but the rest comes from Asia, Africa, Latin America, and the rest of the world.

There’s more Johnnie Walker sold in Thailand than in England, and you might be surprised to learn that one of the biggest consumers of Guinness is Nigeria!

So, buy some Diageo shares, relax with a drink, and see how things are going in 20 years? I reckon you could do worse.

Finally, if you like the idea of shares with growth potential, you should get a copy of the Motley Fool's Top Growth Share report. It examines a company whose shares have actually soared 60% over the past 12 months, but they're still on a pretty average-looking valuation and could well have further to go.

If you want to know more, just click here for your free copy while it's still available.

> Alan does not own any shares mentioned in this article. The Motley Fool has recommended shares in Unilever.