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It’s been a tough few months for the beverage giant’s shareholders diego (LSE:DGE). But this is what the latest dividend forecast means for FTSE 100 The stock is now on my radar as a potential buy.
I think this high-quality business could provide a rare opportunity for long-term investors to consider a purchase at an attractive valuation. here’s why.
diageo dividend forecast
City analysts expect to own Johnnie Walker And Tanqueray To deliver a payout of 80p per share for the 2023/24 financial year. This gives a dividend yield of around 3%.
Forecasts from the same broker suggest the company’s 25-year record for dividend growth will be maintained in 2024/25, with a payout of 84p per share. This can give a yield of 3.1%.
These dividend yields are not particularly high compared to some FTSE shares. Indeed, the index itself offers an average yield of about 3.8%.
However, the 3% yield is above average for Diageo. High profit margins and a long history of growth mean shares have historically commanded premium valuations.
My research shows that the last time Diageo yielded more than 3% was in 2015. Before that it was in 2011.
I think the current share price weakness may provide a buying opportunity. But it is important to note that this business is facing some headwinds at the moment.
The share price fell sharply in November when new chief executive Debra Crew surprised investors with a profit warning.
Ms Crews said sales in Latin America and the Caribbean (LAC) are expected to decline by 20% during the second half of 2023, a reversal of the big gains seen last year.
The problem appears to be that Diageo’s distributors in the LAC region have seen slow local sales. As a result, they are left with too much stock, so they are ordering less from the firm than expected.
Assuming that drinkers in these markets are not permanently stopping drinking, this should only be a temporary problem. But I think there’s a risk that things could get worse before they get better.
why can i buy
Destocking problems have hit Diageo before, but the business has always eventually returned to its long-term growth trend.
As the world’s largest spirits producer, the Group has an impressive and valuable portfolio of brands. This portfolio is combined with a global marketing and distribution network that gives the company access to almost the entire population of the world.
In my view, these factors have driven consistent growth over many years and provided an adequate defensive moat for the business.
Last year’s share price decline means Diageo shares trade at 18 times estimated 2023 earnings. According to me, this is the lowest level since 2012.
Although I can’t rule out further problems in the near term, I think shares already have a fair amount of bad news covered.
For investors looking for reliable, long-term earnings growth, I think the shares may provide value at current levels. Diageo is on my list as a potential buy.
The post Diageo Dividend Forecasts for 2024 and 2025 appeared first on The Motley Fool UK.
Roland Head has no position in any shares mentioned. The Motley Fool UK recommends Diageo PLC. The views expressed on the companies mentioned in this article are those of the author 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 wide variety of insights can make us better investors.
Motley Fool UK 2024