There aren’t many FTSE 100 shares that I can say I’m intending to hold till retirement. But these I can and I’m buying more in 2023.
Image source: Getty Images
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.
Diageo (LSE: DGE) was formed from the merger of Guinness and Grand Metropolitan in 1997. The company has been a remarkable success, and as far as FTSE 100 shares go, you’d fail to find many better performers. In fact, it’s now the seventh-largest firm on the Footsie, with a market cap of £87bn.
It’ll actually be 25 years this month since that merger. An investment over that time would have grown at a compound annual growth rate (CAGR) of just under 8%. Throw in the growing dividends too, and that figure would be much higher.
The name Diageo is composed of the Latin word diēs, meaning “day”, and the Greek word geo-, meaning “world”. Hence the company’s slogan: “Celebrating Life, Every Day, Everywhere“.
Diageo sells its drinks in over 180 countries in all four corners of the world. This extreme global diversification makes it one of the UK’s greatest exporters. Total sales are expected to clock in at over £17bn in 2023.
The company may have been founded in 1997, but its most popular brands go back much further than that. In fact, its top six alcoholic beverages were all founded between 1759 and 1974. This shows the resilience and consumer loyalty these timeless brands possess.
Diageo’s Top Six Brands
Diageo has also been a serial acquirer of popular new brands over many years. Two successful purchases include super-premium tequila brands Don Julio (in 2015) and Casamigos (in 2017). I expect many more of these tuck-in acquisitions, fueling further growth.
The firm also has a 34% stake in Moët Hennessy, which gives it further exposure to the high-end luxury drinks market.
The stock is near its all-time high and currently has a price-to-earnings (P/E) ratio of 26. Like one of its luxury spirits, that’s a bit of a premium price to pay. So the risk here is that I’m overpaying for the stock. Maybe I could wait another six months and get it cheaper.
Maybe. But this won’t be the first time I’ve purchased the stock. And it probably won’t be the last. I see growth opportunities in developing regions and the potential to raise prices in developed markets. I see the shares becoming more valuable.
Of course, the looming global recession could cause a weakening in demand for Diageo’s products. During the last 2008 recession, for example, its US and Europe annual net sales declined 3% and 2%, respectively.
Management highlighted this back in July: “We expect the operating environment to be challenging, with…significant cost inflation, a potential weakening of consumer spending power…We continue to closely monitor consumer trends to enable us to respond quickly”.
Interestingly though, the boss of Moët Hennessy said last month that his firm was “running out of stock on our best champagnes”. This was driven by the wealthy spending big on luxury goods, a continuing trend he referred to as the new “roaring 20s”.
If that’s true, it might also bode well for Diageo’s own ‘super-premium plus’ spirits brands. Either way, I intend to keep my Diageo shares well beyond the 2020s.
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.
Ben McPoland has positions in Diageo Plc. The Motley Fool UK has recommended Diageo Plc. 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.
| John Choong
Morgan Stanley recently picked out a number of US dividend stocks with high yields. So, here are three shares I’m…
Read more »
| Stephen Wright
Inflation and rising interest rates have caused stock market volatility. I’m looking to take advantage by buying cheap shares for…
Read more »
| James J. McCombie
The abrdn share price moved sharply higher in November. Was it something the company did or just a rising tide…
Read more »
| Jon Smith
Jon Smith runs through two US-listed growth stocks that he feels have been battered too much over the course of…
Read more »
| Stephen Wright
A volatile stock market has been generating buying opportunities for investors this year. Stephen Wright has been seizing the opportunity…
Read more »
| Christopher Ruane
Can our writer generate £1,400 in annual passive income streams by investing £20,000 in a Stocks and Shares ISA? He…
Read more »
| Alan Oscroft
I see lots of dividend shares with price falls pushing their yields into double digits. And I’m not just talking…
Read more »
| Jon Smith
Jon Smith explains why a stock market crash could happen next year, but also, if it does, how he can…
Read more »
View All
Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.
To make the world Smarter, Happier, And Richer
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show and premium investing services.
Read more about us >
We have taken reasonable steps to ensure that any information provided by The Motley Fool Ltd, is accurate at the time of publishing. Any opinions expressed are the opinions of the authors only. The content provided has not taken into account the particular circumstances of any specific individual or group of individuals and does not constitute personal advice or a personal recommendation. No content should be relied upon as constituting personal advice or a personal recommendation, when making your decisions. If you require any personal advice or recommendations, please speak to an independent qualified financial adviser. No liability is accepted by the author, The Motley Fool Ltd or Richdale Brokers and Financial Services Ltd for any loss or detriment experienced by any individual from any decision, whether consequent to, or in any way related to the content provided by The Motley Fool Ltd; the provision of which is an unregulated activity.
The value of stocks, shares and any dividend income may fall as well as rise and is not guaranteed, so you may get back less than you invested. You should not invest any money you cannot afford to lose, and you should not rely on any dividend income to meet your living expenses. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, administrative costs, withholding taxes and different accounting and reporting standards. They may have other tax implications, and may not provide the same, or any, regulatory protection. Exchange rate charges may adversely affect the value of shares in sterling terms, and you could lose money in sterling even if the stock price rises in the currency of origin. Any performance statistics that do not adjust for exchange rate changes are likely to result in an inaccurate portrayal of real returns for sterling-based investors.
Fool and The Motley Fool are both trading names of The Motley Fool Ltd. The Motley Fool Ltd is an appointed representative of Richdale Brokers & Financial Services Ltd who are authorised and regulated by the Financial Conduct Authority (FCA) (FRN: 422737). We publish information, opinion and commentary about consumer credit products, loans, mortgages, insurance, savings and investment products and services, including those of our affiliate partners.
The Motley Fool Ltd. Registered Office: 5 New Street Square, London EC4A 3TW. | Registered in England & Wales. Company No: 3736872. VAT Number: 188035783.
© 1998 – 2022 The Motley Fool. All rights reserved. The Motley Fool, Fool, and the Fool logo are registered trademarks of The Motley Fool Holdings Inc.