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%
19.5 20.5
Dividend Yield
2.8% 2.1%
Dividend Cover
1.85x 2.30x
EPS growth 2015*
+5% +5%
17.5 21.6
Dividend Yield
3.2% 2.1%
Dividend Cover
1.81x 2.22x
EPS growth 2016* +7% +10%
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.

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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.