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This FTSE 100 giant could be a great growth pick for your portfolio

Everybody has a guilty pleasure, and mine is chocolate. For those of you who enjoy a drink, you will have come across a brand that belongs to the Diageo (LSE:DGE) family whether you know it or not.

Headquartered in London, with further offices in six continents, it sells products in 180 countries. Instantly recognisable brands include Guinness, Smirnoff, Baileys, Captain Morgan, Ciroc, and many more. It possessed the title of the largest distillery in the world until being surpassed in 2017.

Diageo has long enjoyed steady progress and growth; however, a small dip in the share price represents a possible opportunity in my eyes.

Let’s say cheers to that

At the end of January, Diageo released its first half-year results ending 31 December 2019, and there were some key takeaways highlighting a flourishing business. 

It reported net sales increased by 4.2% to £7.2bn while operating profit increased 0.5% to £2.4bn. The best news is that all regions it operates in seem to contribute to these favourable results.

It also reported strong free cash flow of £1bn, I see as a positive sign and is something I look for when any results are released. Diageo’s free cash flow was actually down by £400m due to tax and payment timings. The interim dividend increased 5% to 27.41 per share.

CEO Ivan Menezes commenting on the results said: “Diageo has delivered another good, consistent set of results in the first half, with broad based organic net sale.”

Crunching numbers

Taking a finer look at the numbers over the last few years shows Diageo’s propensity to perform, grow, and, in my opinion, represent a potentially great option for your portfolio. 

Profit has been increasing every year for the past four years, with an increase of over 40% between 2016 and 2019. 

Dividend per share has also seen a progressive increase in the last four years, which is always a key indicator to look at when you invest your hard-earned money. 

I think of share price is a key indicator of confidence in this company as well as representing an opportunity. In the last six months the share price has seen a drop of around 10%. This is where I believe the opportunity resides. 

I say this because the share price over the past five years has seen a staggering increase of over 60%, which represents tenfold growth. Compare that to the rest of the FTSE 100 average share prices, which grew just 6%.

The price-to-earnings ratio usually comes in at the 25 mark, which sits comfortably above the FTSE 100 figure of around 19. Currently, the Diageo number is below that 25 mark, which could represent a discount. 

What I would do now

When I pick a stock to recommend I usually take into account the performance over short- and long-term as well as the industry and market share a company possesses. 

Reviewing Diageo has ticked all the relevant boxes and the current dip in share price has made it even more tempting. Added to a portfolio, I think this share will grow over time and generate wealth.

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Jabran Khan has no position in the shares mentioned. 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.