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This is what I’d do about the Diageo share price right now

Today’s half-year results from Diageo (LSE: DGE) show once again what a reliable performer it is. Indeed, I rate the drinks giant as one of the very best businesses in the FTSE 100.

It’s shares topped the leader board in early trading, rising as much as 4.3% — and 14.6% up on last October’s dip, during the wider market sell-off. Have investors missed the boat, or is Diageo still a brilliant buy?

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Broad-based growth

Despite unfavourable exchange rates, the company reported 5.8% net sales growth for the six months ended 31 December. Organic growth was 7.5%. Meanwhile, operating profit increased 11% on a reported basis, and 12.3% on an organic basis.

Chief executive Ivan Menezes said growth was “broad-based… across regions and categories.” The strong increase in operating profit, ahead of top-line growth, came as cost inflation and higher marketing investment were more than offset by improved price/mix and efficiencies from the group’s productivity programme.

The cash flow performance was very strong, with free cash flow over 30% ahead of the same period in the prior year. As a result, the board not only lifted the interim dividend by 5%, but also approved an incremental share buyback programme of £660m, bringing the total programme up to £3bn for the year ending 30 June.

Outstanding global business

Latest results are always interesting, of course, but I keep short files on companies with snippets of information that really distil the nature of the business and the quality of its investment appeal.

My Diageo file includes this extract from a 2014 interview in the Telegraph with fund manager Nick Train (a.k.a. Britain’s Warren Buffett).

“Parents drink copious quantities of Gordon’s gin and tonic as their children are growing up. Parents can be certain their teenagers will drink copious quantities of Smirnoff once they have left the nest. Grandparents will drink sensible quantities of Johnnie Walker once the grandchildren have been taken home again. The appeal of Diageo’s brands across the generations and as far into the future as one can see means that it offers investors exceptional predictability.”

Train’s comment is endearingly evocative of middle-class England, and gets to the nub of Diageo’s strength. Terrific brands that are deeply embedded in the culture. Furthermore, I’m confident that whether it’s the group’s global brands, or ‘local stars’ many of us in the UK will never have heard of, the company is similarly successful across Europe, the Americas, Africa and Asia.

One of these days…

The shares are currently trading at around 2,880p. Forward 12-month earnings forecasts put it on a price-to-earnings (P/E) ratio of 21.9, while dividend forecasts give a yield of 2.5%. This rating is identical to when I wrote about the stock last June, and very similar to the 21.7 and 2.5% in my more recent look at the company in November.

I’ve said many times that buying Diageo’s stock on dips (such as the one we had in October) is the ideal time. On such occasions, the P/E comes down from the higher end of its historical range and you get a starting dividend yield of nearer 3%. I rated Diageo a ‘hold’ in my last two articles, and do so again now, with the valuation at much the same level. One of these days, I might manage to get an article out on a dip, and have the pleasure of rating it a ‘buy’!

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.