MENU

Diageo plc Just Edges SABMiller plc In The Battle Of The Boozers

SAB MillerBooze sellers can be pretty good defensive investments during economic downturns — whatever people need to cut back on when the belts are tightening, they do seem to carry on wanting a snifter or two.

Big two

We only have to look at the big two on the FTSE 100 to see what I mean. Shares in Diageo (LSE: DGE) (NYSE: DEO.US) are up 85% over the past five years to 1,775p against a FTSE 100 that has struggled to put on 40%.

And SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) shares have done even better, hitting a 130% rise to 3,313p!

But which is better to buy now? Here’s a quick look at the two companies’ financial statistics:

Year Diageo SABMiller
EPS growth 2014 -7% +2%
P/E
19.5 20.5
Dividend Yield
2.8% 2.1%
Dividend Cover
1.85x 2.30x
EPS growth 2015*
+5% +5%
P/E
17.5 21.6
Dividend Yield
3.2% 2.1%
Dividend Cover
1.81x 2.22x
EPS growth 2016* +7% +10%
P/E
16.6 19.6
Dividend Yield
3.4% 2.3%
Dividend Cover
1.80x 2.22x

* forecast

The stronger price run for SABMiller has clearly taken its toll on fundamental valuations, pushing the P/E to 20 and more — the long-term FTSE average stands at around 14.

Great brands

But if we look at the company’s markets and brands, it’s not hard to see why its shares command such a premium. Miller, Carling, and Pilsner Urquell are well known in the UK. But the UK only accounts for 2% of SABMiller’s annual turnover — and the USA just 1%!

SABMiller’s home base of South Africa was responsible for a full 20% of 2013 turnover, with Colombia coming a close second with 17% and Australia in third place with 12%. And the company sells hundreds or brands around the world.

And yet more

But then, Diageo is in a similar position, owning a good number of the world’s most popular wines and spirits brands, including Gordon’s Gin, Smirnoff Vodka, Hennessy, Moët & Chandon, Captain Morgan and, of course, that breakfast of champions, Johnnie Walker.

In terms of quality and desirability of products, its a very close run thing, and I really would not try to choose between the two.

So it comes down to fundamentals, and I’m still torn — I’m very strongly swayed by SABMiller’s share price having beaten the FTSE 100 for 12 years in a row from the year 2000.

The dividend tips it

But on balance, I just about prefer Diageo’s lower P/E valuations and superior dividend yields, albeit with slightly lower cover.

Finally, if you seek more shares with great dividends and with growth prospects for the future, you'll find ideas in "The Fool's Five Shares To Retire On" report. They're nicely diversified across the FTSE sectors too, so you'll get a nicely balanced selection.

The report is completely free, so click here to get your copy today!

Alan Oscroft has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.