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Looking for high dividend stocks to buy for the holidays? Diageo‘s (LSE:DGE) one star incomer I will consider buying once I have the money to invest.
Here is the reason.
Trading problems
November was another difficult month for Diageo’s share price. It fell to a new multi-year low as worries about interest rates intensified again. Beverage makers have suffered the most as high interest rates have affected sales.
On top of this, shares in the entire beverage sector fell after China threatened to impose anti-dumping duties on the European Union product. These tariffs are designed to prevent foreign competitors from selling their goods at unfairly low prices.
As a long-term Diageo investor, I have been smitten by holding onto its shares. I FTSE 100 the company’s value has fallen by 36% in the past two years as sales have fallen.
Total sales fell by 1.4% in the last financial year (to June 2024), the latest financials showed, as reverse pricing reduced the benefit of inflation.
Reasons to be happy
Call me a glutton for punishment. But I am not planning to sell my shares. Instead, I’m thinking of increasing my share in the next opportunity.
Okay, Diageo’s decline has been pretty bad lately. Sales have dried up in Latin America and the Caribbean as drinkers have turned to cheaper labels. It also endured a decline in net sales in North America, Africa, and Asia Pacific.
But its ability to bounce back from problems has been proven time and time again. And while past performance is not always a reliable indicator of the future, I feel that Diageo still has the tools to overcome its current challenges.
With high-margin heavyweight labels like Captain Morgan again Johnny Walkerit is well placed to take advantage of the market recovery whenever it arrives. It also has significant exposure to fast-growing segments such as premium and non-alcoholic beverages.
Diageo’s strong record of innovation also remains intact, as its sales rise Guinness 0.0 non-alcoholic beverage displays. Total sales and volumes here have more than doubled over the last financial year.
Besides, I feel that the problems facing the Footsie firm are now factored into its ultra-low price-to-earnings (P/E) ratio of 17.3 times.
This is well below its five-year average of 31.1 times.
Let’s talk about the benefits
For me, one of the biggest attractions of Diageo is its ability to pay a respectable and growing dividend, regardless of the difficult conditions of the sector.
And its appeal has improved recently as its yield has increased significantly.
Even with last year’s problems, the company increased the total dividend by 5% to 103.48 US cents per share. With its reported capital – which, from 2023, was in US dollars – Diageo has now increased annual dividends every quarter of a century.
It’s a trend City analysts expect you to continue. The dividend yield on Diageo shares therefore stands at:
- 3.5% of finance by 2025
- 3.7% of finance by 2026
- 3.9% of finance by 2027
Interestingly, Diageo’s near-term yield is about 1% higher than the historical average, reflecting the weakness of the company’s recent valuation. It also provides an extra sweetener for potential dip consumers like me.
Despite recent trading difficulties, Diageo remains one of my favorite stocks right now.
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