Updated on March 24th, 2021 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 65 Dividend Aristocrats. You can download an Excel spreadsheet of all 65 (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 by forecast total returns for the next five years.
Table of Contents
The top alcohol stocks are listed here, according to annual expected returns over the next five years. Stocks are ranked according to a number of criteria including expected returns, as well as business model strength, competitive advantages, and dividend safety.
Stocks are listed in order of attractiveness, from lowest to highest.
- Alcohol Stock #6: Ambev SA (ABEV)
- Alcohol Stock #5: Molson Coors (TAP)
- Alcohol Stock #4: Anheuser-Busch InBev (BUD)
- Alcohol Stock #3: Constellation Brands (STZ)
- Alcohol Stock #2: Brown-Forman (BF-B)
- Alcohol Stock #1: Diageo plc (DEO)
Alcohol Stock #6: 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.
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.
Ambev reported Q4 2020 and full year results on February 25th, 2021. For the quarter, company-wide net revenue increased 20% to $3.32 billion. Earnings-per-share increased 65.5% to $0.077.
Source: Investor Presentation
The top line grew due to a 7.7% volume increase and 5.3% increase in net revenue per hectoliter. The company continues to benefit from gradual easing of restriction in its markets.
For the year, net revenue increased 12.3% to $10.47 billion, while earnings-per-share declined 3.2% to $0.13. We are expecting approximately 3% annual earnings growth over the next five years.
Ambev has a dividend yield above 3%. Investors should note that because the dividend is declared in Brazilian currency, payment in U.S. dollars will fluctuate based on exchange rates. Therefore, shareholders should not assume Ambev will be a suitable stock for dividend income.
Alcohol Stock #5: 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.
Source: Investor Presentation
On February 11th, 2021 Molson Coors reported Q4 and full year 2020 results for the period ending December 31st, 2020. For the quarter the company generated $2.29 billion in sales, down -7.7% compared to Q4 2019. Net sales were down just -0.8% in North America, but down -37.2% in Europe.
Molson Coors reported a net loss of -$1.37 billion or -$6.32 per share compared to a gain of $163.7 million or $0.75 per share in Q4 2019. However, this included a -$1.5 billion goodwill impairment charge in the European segment. On an adjusted basis, earnings-per-share equaled $0.40 versus $1.02 prior.
For the year, Molson Coors generated revenue of $9.65 billion, an -8.7% decline compared to 2019. Sales in the North American segment were down -4.4%, while the European segment was down -27.9%. Molson Coors reported a loss for 2020, which was impacted by the impairment charge. On an adjusted basis EPS equaled $3.92 versus $4.54 in 2019. Molson Coors also said that it expects to be in a position to reinstate the dividend in the second half of 2021.
Molson Coors has fallen behind the trends in the U.S. beer industry, specifically the craft beer boom. There is a great deal of growth taking place for smaller breweries that produce craft beers. Molson Coors has a relatively small group of craft beers in its portfolio, which is a big reason for its lack of growth in recent years. The company is focused on growing its core brands once more, by investing in its existing brands and making acquisitions.
We do not recommend the stock to income investors until the company reinstates its dividend.
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. You can see a detailed analysis of AB-InBev’s 17 billion-dollar brands here.
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.
AB InBev reported Q4 2020 and full year results on February 25th, 2021. For the quarter, company-wide revenue was $12.76 billion as volumes rose 1.6% and revenue per hl was up 2.7%. The three global brands of Budweiser, Stella Artois, and Corona performed well with volumes increasing 1.5% globally and 1.3% outside of their home markets.
Source: Investor Presentation
For the year, revenue was $46.88 billion as volumes declined -5.7% offset by a 2.1% rise in revenue per hl. Gross margin and EBIT margin contracted for the year to 58.1% and 27.1% respectively, continuing a trend since the SABMiller acquisition.
The brewer continues to focus on deleveraging, improving the debt maturity profile, and lowering financing costs. The company has stated the deleveraging is a priority for 2021 and beyond until a leverage ratio of 2x is attained, but AB InBev remains far from this goal with a current leverage ratio of 4.8x.
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. Despite the now low payout ratio we view it as unlikely that the dividend will be raised until leverage is reduced.
Alcohol Stock #3: 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.
On January 7th, 2021 Constellation Brands reported Q3 fiscal year 2021 results for the period ending November 30th, 2020 (Constellation Brands’ fiscal year ends the last day of February.) For the quarter the company recorded $2.438 billion in net sales, representing a 21.9% increase compared to Q3 2020 as beer sales were up 28% and Wine and Spirits were up 10%.
Earnings-per-share totaled $3.09 on a comparable basis or $3.16 excluding Canopy Growth, representing a 32% improvement. In addition, Constellation Brands provided a fiscal 2021 outlook, anticipating $10.30 to $10.55 in earnings-per-share on a reported basis and $9.80 to $10.05 on a comparable basis.
Constellation expects to continue generating growth in the years ahead, largely due to its premiumization strategy.
Source: Investor Presentation
One of the biggest reasons for Constellation Brands’ impressive growth in recent years, is its focus on the premium segment, which continues to grow. According to the company, growth rates in the high-end market of spirits, wine, and beer are much higher than lower-priced categories.
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.
It is also expanding into new product categories to appeal to changing consumer preferences. An example of this is the August 2017 acquisition of Funky Buddha, which included a portfolio of craft beers to add exposure to the high-growth craft beer segment of the U.S. beer market. In 2018, Constellation Brands acquired Four Corners Brewing, and recently Constellation Brands invested $4 billion in cannabis producer Canopy Growth (CGC) giving it a 38% ownership stake.
We expect Constellation Brands stock to grow earnings by 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%. Constellation Brands has not increased its dividend since 2019, but the dividend payout is well-covered.
Alcohol Stock #2: Brown-Forman (BF-B)
Brown-Forman has an impressive history of dividend growth. The company has paid a dividend to shareholders for 75 consecutive years. It has increased its dividend for 37 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.
Source: Investor Presentation
Brown-Forman reported its third quarter (fiscal 2021) earnings results on March 4. The company announced that it generated revenues of $910 million in the period, which was up 1.3% from the revenues the company generated during the previous year’s quarter. Brown-Forman’s revenues came in ahead of the analyst consensus, beating it by $9 million.
Sales were negatively impacted by currency rate headwinds, which is why it should be noted that underlying net sales, or organic sales, were up more than 1% during the quarter, and up 2% so far during this fiscal year. Brown-Forman’s earnings-per-share totaled $0.45 during the third quarter, which was slightly above the consensus analyst estimate, beating the consensus by $0.02. The quarter’s profits were down year-over-year, declining by 5% compared to the previous year’s quarter.
We expect approximately 7% annual earnings growth for Brown-Forman over the next five years. In addition, the stock has a 1% dividend yield. Brown-Forman appears overvalued with its high P/E, but the stock has historically held a premium valuation. It has continued to generate strong shareholder returns despite a persistently high valuation multiple.
And, it is a high-quality dividend growth stock with a long history of dividend increases. For a more detailed analysis of Brown-Forman, click here.
Alcohol Stock #1: 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.
Diageo released earnings results for first half of fiscal year 2021 on 1/28/2021. Net sales decreased 4.5% as organic growth of 1% was more than offset by the negative impact from currency exchange. North America was strong with organic growth of 12.3% due to higher consumer demand, market share growth and replenishment by distributors and retailers.
Gains in this region were offset by weakness in all other regions except for Africa, which was flat. Organic volumes were down 2.2% as gains in North America and Latin America & Caribbean were offset by all other regions.
Source: Investor Presentation
We estimate 8% annual earnings growth through 2025, comprised of mid-single-digit organic revenue growth, margin expansion, and resumption of share repurchases.
Diageo shares currently trade for a price-to-earnings ratio of 26.6, slightly above our estimate of fair value at 18.3. This implies negative returns of 7.2% from a declining P/E ratio.
Diageo pays a semi-annual dividend, and increases the dividend regularly. The most recent interim dividend was increased 2% in local currency. In total, dividends of US$3.55 per share paid in 2020 equate to a current yield of 2.2%.
Diageo is the top-ranked alcohol stock due to its large and diversified portfolio of leading brands, its continued strong results and dividend growth through the pandemic, and its safe dividend payout.
The stock market has been extremely volatile to begin 2020. Many alcohol stocks were hit hard as the coronavirus crisis unfolded, but some have come back significantly in recent weeks. 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.