I reckon Stock Spirits (LSE: STCK) has an attractive dividend. With the share price close to 194p, the yield is just over 3.9%.
The vodka and other spirits supplier has a good record of raising its dividend annually over the past five years, driven by its progressive dividend policy. In today’s full-year report, the company said the business “continues to generate strong cash flows and a healthy cash conversion rate.” Those are good characteristics for supporting dividend payments and strong, stable cash flow tends to be a feature of the sector.
When I talk about Stock Spirits, it’s always tempting for me to mention the FTSE 100’s Diageo as a shining example of a firm doing very well from alcoholic beverages. But there are some big differences between the two firms. Diageo is driven by its powerful, well-known brands and operates globally, whereas Stock Spirits has no global brands and operates in Central and Eastern Europe.
However, the smaller company does have brands that do well in specific geographies. Its products are “rooted in local and regional heritage.” Indeed, the firm’s core operations are in Poland, the Czech Republic, Slovakia, Italy, Croatia and Bosnia & Herzegovina, but it also exports to more than 50 other countries worldwide. And though it’s a minnow compared to Diageo, the company achieves sales volumes of around 125m litres per year, so it’s a large business. And Vodka accounts for almost half the turnover.
In the trading year to 30 September, underlying volume rose by 8% compared to the previous year, which delivered a lift in constant currency revenue of just over 10%. Meanwhile, earnings rebounded by more than 100%, taking them close to levels last seen around 2014.
Chief executive Mirek Stachowicz said in the report that the firm’s strategy of premiumisation is making progress. And I reckon that selling brands by emphasising their quality has clear parallels with the approach that has made Diageo so successful. Stachowicz said the turnaround of the business in Poland is complete, and there have been 29 consecutive months of year-on-year volume share growth in that market. In the trading year just ended, constant currency revenue from Poland increased by 14%.
Organic and acquisitive growth
Things are going so well in the region that the company announced today its intention to invest €25m in additional distillation capacity in Poland, for completion in three years’ time. Meanwhile, operations are also ticking along nicely in the Czech Republic where currency-adjusted underlying revenue increased by 10%.
During the period, the company acquired Distillerie Franciacorta, which is a leading grappa, spirits and wine business in Italy. It also bought Bartida, which is a “high-end” on-trade spirits business in the Czech Republic. Looking ahead, the directors are assessing “a range” of M&A opportunities. The directors said they are “committed” to pursuing a strategy of both organic and inorganic growth.
I reckon the shares are attractive and at the current price around 194p, the forward-looking earnings multiple for the trading year to September 2020 sits near 12.
Income-seeking investors like you won’t want to miss out on this timely opportunity…
Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business that’s throwing off gobs of cash!
But here’s the really exciting part…
Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...
He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.
With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.
Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Income Share… free of charge!
Kevin Godbold has no position in any share 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.