This Alcohol Stock Is A Cash Machine

There are many reasons for investors to like the major alcohol stocks. Alcohol is a highly profitable and steady business. Demand typically holds up very well during recessions, which leads to consistent growth and cash flow from year to year.

In turn, many of the top alcohol stocks return cash to shareholders, through dividends and/or share buybacks. For example, Constellation Brands (STZ) is a cash machine, thanks to a large portfolio of industry-leading brands. It also has significant future growth potential, and the company recently raised its dividend.

For all these reasons, Constellation Brands is a top alcohol stock.

Premium Brands Lead To Pricing Power

Constellation Brands produces and distributes beer, wine, and spirits. It has over 100 brands in its portfolio. It imports and sells beer brands such as Corona and Modelo. 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.

Last year was another of solid growth rates for the company. In its recently concluded fiscal 2019, sales and operating income increased 6% and 7%, respectively. Adjusted earnings per share increased 7% for the fiscal year.

Constellation’s beer brands led the way with 11.6% sales growth for the fiscal year, thanks to its Corona and Modelo brands. The company has focused on a premiumization strategy to drive growth across its brand portfolio. This means focusing on premium brands which gives the company pricing power. The company expects sales and operating income to grow by 7% to 9% in its core beer segment in the upcoming year.

Growth And Expected Returns

Constellation Brands is an attractive stock for growth and income. Earnings growth is fueled in large part by sales growth, and also by share buybacks. The company repurchased 2.4 million shares of its common stock for $504 million in fiscal 2019. Separately, Constellation raised its dividend by 1%. The forward dividend yield is 1.6%.

Future buybacks and dividend growth are likely due to the company’s organic growth, as well as its new strategic initiatives. Last year, Constellation made a huge $4 billion equity investment in Canadian cannabis producer Canopy Growth (CGC). This investment gives Constellation exposure to a new and potentially huge growth opportunity in an adjacent category.

To help improve its balance sheet, the company recently agreed to sell a collection of wine and spirits brands to E. & J. Gallo Winery for approximately $1.7 billion. This will help the company pay down debt, and continue to return cash to shareholders.

Constellation Brands stock could generate strong returns to shareholders. The company is expected to grow earnings by 10% per year. Combined with the dividend, total returns could exceed 11% per year going forward.