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Forget buy-to-let! I’d rather invest £2k in the Diageo share price today

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Shelves holding drinks bottles
Image source: Getty Images.

The Diageo share price has shown tremendous resilience during the stock market crash. Naturally, it fell sharply during March, along with almost every other FTSE 100 stock. But it didn’t fall as far, and has recovered faster than most.

Spirits giant Diageo (LSE: DGE) looks a better way to play the stock market rebound than most FTSE stocks. The truth is the lockdown has played to its strengths, as people have carried on drinking to soothe themselves while in self-isolation.

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Ending the lockdown could further boost the Diageo share price, as people will feel they’ve plenty to celebrate when they start going out again.

I wouldn’t bother with buy-to-let

I would rather invest £2k in Diageo stock, or any other amount, than commit a much bigger sum to the property market today. One of the joys of shares is that you can invest small sums, in seconds, through an online platform. You can sell just as quickly too.

If you want to buy or sell a buy-to-let property, the process takes months. Especially at the moment. While you can invest in the Diageo share price today, that buy-to-let probably won’t be yours until the autumn.

You also have to stump up a fat deposit, and raise finance to fund your purchase. Total costs, including mortgage arrangement fees, surveys, stamp duty (with a 3% surcharge) and so on, will be thousands of pounds. That’s before you get a penny in rental income.

The final great advantage in buying into the Diageo share price, or any other FTSE 100 stock, is that you can take your returns free of tax using your Stocks and Shares ISA allowance. That means all your capital gains and dividend income are free of tax, for life.

With buy-to-let, they’ll be taxed. Worse, you can only claim basic rate mortgage tax relief, even if you pay at a higher rate. You have to put fiddly numbers on your self-assessment tax return, whereas you don’t even have to mention your ISA.

That’s why I’d buy the Diageo share price

Diageo is a global company offering market-leading brands that people need little persuasion to buy – Guinness, Baileys, Johnnie Walker, Smirnoff, Tanqueray, and so on. CEO Ivan Menezes has responded to the trend for young people to drink less, by encouraging them to upgrade to higher quality (and premium priced) spirits when they do drink.

By contrast to many FTSE 100 stocks, you now get a dividend when you invest in Diageo, although share buy-backs have been paused. The yield is 2.45%, which may seem relatively low, but management is progressive. It tends to rise by a healthy amount each year. 

The Diageo share price actually trades 57% higher than it did five years ago. Yet it’s also trading at a 17% discount to January’s price, thanks to the crash. This is a stock with staying power, and I’d buy it today.

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Harvey Jones 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.

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