The 6 Best Alcohol Stocks Now Ranked For Future Returns

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The 6 Best Alcohol Stocks Now Ranked For Future Returns


Updated on February 2nd, 2022 by Bob Ciura

Investors looking for companies that generate strong profits and pay dividends should take a closer look at the major alcohol stocks. These are companies that manufacture and distribute a variety of alcoholic beverages, including beer, wine, and liquor.

The top companies in this industry have many attractive qualities. They have popular brands, which give them pricing power and strong cash flow. This allows them to pay dividends to shareholders. Alcohol stocks also tend to perform well during periods of economic downturns, meaning they can provide diversification and recession-resistance to a portfolio.

To the point, one alcohol stock even makes the exclusive Dividend Aristocrats list, an elite group of S&P 500 stocks with 25+ years of rising dividends.

There are currently 66 Dividend Aristocrats. You can download an Excel spreadsheet of all 66 Dividend Aristocrats (with metrics that matter such as dividend yields and payout ratios) by clicking the link below:

 

More information can be found in the Sure Analysis Research Database, which ranks stocks based upon the combination of their dividend yield, earnings-per-share growth potential and valuation changes to compute total returns.

This article will rank the top alcohol stocks right now.

Table of Contents

The top alcohol stocks are listed here. Stocks are ranked according to their 5-year expected returns. Stocks are listed in order of attractiveness, from lowest to highest.

Alcohol Stock #6: Brown-Forman (BF.B)

Brown-Forman has an impressive history of dividend growth. The company has increased its dividend for 38 years in a row, making it a Dividend Aristocrat.

Brown-Forman’s long dividend growth history is due to its strong brands and recession resiliency. It has a large product portfolio, which is focused on whiskey, vodka, and tequila. Its most famous brand is its flagship Jack Daniel’s. Other popular brands include Herradura, Woodford Reserve, El Jimador, and Finlandia.

We expect approximately 7% annual earnings growth for Brown-Forman over the next five years. In addition, the stock has a 1.1% dividend yield.

However, Brown-Forman appears significantly overvalued with its high P/E of 39, compared with our fair value multiple of 24.

As a result, the stock has negative expected returns of -1.2% per year. This makes the stock a sell in our view.

Click here to download our most recent Sure Analysis report on Brown-Forman (preview of page 1 of 3 shown below):

Alcohol Stock #5: Constellation Brands (STZ)

Constellation Brands was founded in 1945, and today, it produces and distributes beer, wine, and spirits. It has over 100 brands in its portfolio, including beer brands such as Corona. In addition, Constellation’s wine brands include Robert Mondavi and Clos du Bois. Its liquor brands include SVEDKA Vodka, Casa Noble Tequila, and High West Whiskey.

One of the biggest reasons for Constellation Brands’ impressive growth in recent years, is its focus on the premium segment, which continues to grow.

Premium alcoholic beverages also carry pricing power, a key driver of revenue and earnings growth. Constellation also competes in all three categories because spending per consumer is much higher for those that drink all three types of alcoholic beverages. Constellation’s strategy is to capture the market share of the most valuable consumers.

We expect Constellation Brands stock to grow earnings by 5.5% per year over the next five years, comprised of volume growth, price increases, and share repurchases. In addition, the stock has a current dividend yield of 1.3%.

However, the stock also appears to be overvalued in our view, leading to total expected returns of just 2.8% over the next five years.

Click here to download our most recent Sure Analysis report on Constellation Brands (preview of page 1 of 3 shown below):

Alcohol Stock #4: Anheuser-Busch InBev (BUD)

AB-InBev is the largest beer company in the world. In its current form, it is the result of the 2008 merger between InBev and Anheuser-Busch. Today, it sells more than 500 beer brands, in more than 150 countries around the world. Some of its most popular brands include Budweiser, Bud Light, Corona, Stella Artois, Beck’s, Castle, and Skol.

Overall, AB-InBev has 17 individual beers that each generate at least $1 billion in annual sales.

Source: Investor Presentation

AB-InBev has achieved its growth primarily through huge mergers with other beer companies. AB-InBev was first brought together by the $52 billion merger in 2008, between Interbrew from Belgium, AmBev from Brazil, and Anheuser-Busch from the U.S.

In 2013, AB-InBev acquired the remaining portion of Grupo Modelo that it didn’t already control, for $20 billion. Finally, AB-InBev acquired SABMiller for over $100 billion.

The company’s dividend is paid twice a year much like many European companies, but the interim dividend was suspended due to COVID-19 and only the final dividend was paid. The company has prioritized deleveraging to reach its net debt-to-EBITDA ratio goal over dividends.

We expect annual returns of 3.3% per year, due to 3% EPS growth, the 1% dividend yield, and a small reduction from a declining valuation multiple.

Click here to download our most recent Sure Analysis report on BUD (preview of page 1 of 3 shown below):

 

Alcohol Stock #3: Diageo PLC (DEO)

Diageo traces its roots all the way back to the 17th century and the Haig family, the oldest family of Scotch whiskey distillers.

Today, Diageo manufacturers some of the most popular spirits and beer brands in the world, such as Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, Guinness, Crown Royal, Ketel One, and many more. In all, Diageo has 20 of the world’s top 100 spirits brands.

We estimate 8% annual earnings growth through 2027, comprised of mid-single-digit organic revenue growth, margin expansion, and share repurchases.

Diageo pays a semi-annual dividend, and increases the dividend regularly. We expect annual returns of nearly 4% per year.

Even though we expect 8% EPS growth along with the 2% dividend yield, we view the stock as significantly overvalued right now.

Click here to download our most recent Sure Analysis report on Diageo (preview of page 1 of 3 shown below):

Alcohol Stock #2: Ambev SA (ABEV)

Ambev SA is the successor of two of the oldest brewers in Brazil, Companhia Cervejaria Brahma and Companhia Antarctica Paulista Indústria Brasileira de Bebidas. Antarctica was founded in 1885, while Brahma was founded in 1888.

Today, Ambev operates as a producer and distributor of alcoholic beverages. Its main business is beer, with brands including Skol, Brahma, Antarctica, Quilmes, Labatt, Presidente, and more.

Related: See our favorite beer stocks analyzed in detail.

It also has smaller businesses in soft drinks and other non-alcoholic beverages, with brands such as Guarana Antarctica and Fusion. Currently, Ambev has operations in 16 countries, primarily in South America, Central America, and Latin America.

Related: Beverage industry stocks ranked.

We expect annual returns of 7.2% for Ambev, based on 3% expected EPS growth, a small boost from an expanding P/E multiple, and the ~3% dividend yield.

Investors should note that because the dividend is declared in Brazilian currency, payment in U.S. dollars will fluctuate based on exchange rates.

Click here to download our most recent Sure Analysis report on Ambev (preview of page 1 of 3 shown below):


Alcohol Stock #1: Molson Coors (TAP)

Molson Coors Brewing Company was founded in 1873. Since then, it has grown into one of the largest U.S. brewers. It has a variety of brands including Coors Light, Coors Banquet, Molson Canadian, Carling, Blue Moon, Hop Valley, Crispin Cider, and the Miller beer brands.

You can see an overview of the company in the image below:

Source: Investor Presentation

On October 28th, 2021, Molson Coors reported Q3 2021 results for the period ending September 30th, 2021. For the quarter the company generated $2.82 billion in sales, up 2.5% compared to Q3 2020. Net sales were down 1.2% in North America, but were up 19.2% in Europe.

Reported net income equaled $453 million or $2.08 per share compared to $342.8 million or $1.58 per share in Q3 2020. On an adjusted basis, earningspershare equaled $1.75 versus $1.62 prior.

The company is focused on growing its core brands once more, by investing in its existing brands and making acquisitions.

We expect annual returns just above 10%, based on 4% expected EPS growth, the 2.8% dividend yield, and a sizable boost from an expanding P/E multiple.

Click here to download our most recent Sure Analysis report on Molson Coors (preview of page 1 of 3 shown below):

 

Final Thoughts

Many alcohol stocks were hit hard as the coronavirus crisis unfolded, but some have come back significantly in recent months. For value and income investors, the recovery in alcohol stocks has reduced the number of buying opportunities due to rising valuations and declining dividend yields.

Still, the world’s best alcohol manufacturers have strong brands, and generate high cash flow that is used for growth investment as well as cash returns to shareholders.

It is also valuable for investors that alcohol stocks are likely to be among the best-performers if a recession does occur. Consumption of alcoholic beverages will stay steady–and could even increase–in a recession. A sustained recovery from the coronavirus would be a major benefit for the biggest alcohol manufacturers.

 

If you are interested in finding high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

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