8 Top Beverage Stocks For 2019, Ranked In Order

This article examines the investment prospects of 8 of the top beverage stocks in detail.

The companies analyzed sell a mix of alcoholic and non-alcoholic beverages. We rank these 8 companies by our expected total annual return estimate over the next 5 years, which is a combination of estimates for earnings growth, the current dividend yield and multiple expansion/reversion.

Table of Contents

  • Brown-Forman (BF-B)
  • Coca-Cola (KO)
  • PepsiCo (PEP)
  • Diageo plc (DEO)
  • Ambev SA (ABEV)
  • Constellation Brands (STZ)
  • Molson Coors (TAP)
  • Anheuser-Busch InBev NV (BUD)

Top Beverage Stock #8: Brown-Forman

  • Estimated total return through 2024: 3.9%.

Brown-Forman is headquartered in Louisville, KY and was founded in 1870.  This alcoholic beverage industry company manufactures and markets a wide variety of whiskeys, vodkas, tequilas and wine.  Some of its products include Jack Daniel’s, Finlandia Vodka and Old Forester.  The company has a market cap of more than $22 billion.

Brown-Forman reported financial results for the second quarter of fiscal 2019 on December 5th.

BF.B Financials

Source: Brown-Forman’s Second Quarter Results Release.

Brown-Forman had earnings-per-share, or EPS, of  $0.52 during the quarter, a 4% increase from the previous year.  Revenues were down 0.4% to $910 million.  The rare decline in revenues was due to tariffs placed on whiskeys and other products by countries retaliating against the U.S.’s own tariffs.  This led to customers purchasing more product than usual in the first quarter.  Brown-Forman’s first quarter sales were up 5% year-over-year.   The company expects fiscal 2019 revenues to be up 6%-7%, which would be a strong showing given the slight decline that occurred in the second quarter.

Brown-Forman expects to earn $1.80 per share in fiscal 2019.  This would represent 7.8% growth over the previous year.  We expect earnings to grow at a rate of 8.8% through 2024, slightly below Brown-Forman’s five-year average growth rate of 9%.  We should note that while most companies saw EPS decline during the last recession, Brown-Forman’s EPS results improved nearly 16% from 2008 to 2009.

Brown-Forman has paid a dividend for the past 35 years, making the company a Dividend Aristocrat.  The company has increased its dividend:

  • By an average of 7.4% per year over the past three years.
  • By an average of 8.9% per year over the past three years.
  • By an average of 8.5% per year over the past three years.

The company’s most recent dividend increase occurred in November, when Brown-Forman gave investors a 5.1% raise.  Based off of the annualized dividend of $0.66 per share, the stock offers a current yield of 1.4%.  This is below the 2.1% yield of the S&P 500 and the 2.8% yield of the 10-year Treasury bond.

Brown-Forman has a dividend payout ratio of 36.7%.  This is a very conservative payout ratio and below the ten-year average payout ratio of 37.3%.  This makes it likely that Brown-Forman will be able to continue to pay and raise its dividend even if earnings decline.

Brown-Forman has paid a special dividend of $1 per share in two out of the last three years.  Prior to this, the last time the company paid a special dividend was in 2013.  While not a given to occur each year, this potential for a special dividend is an added bonus for investors.

Brown-Forman’s stock has a current price of $46.  Using estimates for fiscal 2019 EPS of $1.80, the stock has a price to earnings ratio, or P/E, of 25.6.  This is one of the highest valuations found on this list of companies.  We have a 2024 target valuation of 19.5x EPS.  If shares were to reach this valuation, annual returns would be reduced by 5.3% over the next five years.

We believe Brown-Forman can offer a total return of 3.9% per year through the fiscal year 2024.  The company’s earnings growth rate (7.8%) and dividend yield (1.4%) are offset by our expected valuation decline (5.3%).  While the company’s dividend growth streak is impressive, we feel that the total expected return is too low for investors to consider the company for purchase.  Even with a year-to-date decline of 15%, we suggest investors either wait for a further pullback in Brown-Foreman or put their investment dollars in a different stock.

Top Beverage Stock #7: The Coca-Cola Company

  • Estimated total return through 2023: 5.6%.

With a market cap of $197 billion, Coca-Cola is the world’s largest beverage company.  The company owns or licenses more than 500 non-alcoholic beverage brands around the world, including more than 20 billion dollar brands.  Coca-Cola is now present in almost every country on earth and its products are consumed nearly two billion times per day.  Coca-Cola has more than $35 billion in sales in 2017.

Coca-Cola reported financial results for the third quarter on October 30th.

KO Q3 2018 Operating Review

Source: Coca-Cola’s Third Quarter Financial Results Release. 

Earnings-per-share increased 16% to $0.58.  This was $0.03 above estimates.  Revenue of $8.2 billion was $20 million above the market’s expectations.  On a year-over-year basis, revenue was down 9.5% due to Coca-Cola’s bottler refranchising efforts.

Organic growth increased by 6%, as Coca-Cola’s focus on non-core brands such as Fuze and smart water appears to be paying off.  Unit volume was higher by 2% as was sparking soft drinks.  Juice and plant based beverages hurt by a tough economy in the Middle East and North Africa.  This group was down 3% from the prior year.  Water and sports drinks volumes were up 5% due to growth of single-serve products in China and Mexico.

By regions, North America improved just 2%, but Latin America saw 19% organic growth in constant currency.  Coca-Cola gained market share in North America and strong pricing helped drive growth in Latin America.  Developed markets in Europe, Middle East and Africa help lead this region’s 9% organic growth.

Coca-Cola saw EPS increase during the last recession.  This combined with a lengthy dividend track record (see below) makes Coca-Cola one of our favorite recession resistant stocks to own.  The company had an annual average earnings growth rate of 4.3% from 2008 to 2017.  Coca-Cola is expected to earn $2.10 per share this year.  This would be a 10% increase from the previous year.  Due to company restructuring, improvements in unit volumes, we expect EPS to grow at a rate of 6.7% per year through 2023.   A lower effective tax rate of ~22% in 2018 compared to 31% in 2017 will also contribute to this expected growth.

Coca-Cola has increased its dividend for the past 56 years, making the company a Dividend King.  Only 10 other companies can match or exceed this streak.  The company has increased its dividend by:

  • By an average of 6.2% per year over the past three years.
  • By an average of 7.4% per year over the past five years.
  • By an average of 7.9% per year over the past ten years.

Coca-Cola increased its dividend 5.4% for the payment made last April.  Shares currently offer a 3.3% yield, higher than both the yield of the S&P 500 and the 10-year Treasury bond.  Coca-Cola paid out $1.56 in dividends during 2018.  Using our expected EPS for the year of $2.10, Coca-Cola pays out 74.3% of earnings in the form of dividends.  This is above the company’s average payout ratio for the last decade of 64%, but below the payout ratios of 2014 to 2017.  We find that Coca-Cola’s dividend is safe despite its high payout ratio.

Coca-Cola has a current share price of $47.5.  Using our EPS estimate, the stock has a P/E ratio of 22.6.  From 2008 through 2017, the average P/E ratio was 18.  If the stock were to decline to this average valuation by 2023, then the multiple would contract 4.4% per year.

We see shares of Coca-Cola offering a 5.6% return per year through 2023.  This estimate is derived from growth (6.7%), dividends (3.3%) and multiple reversion (4.4%).  Coca-Cola’s organic earnings growth was solid in the most recent quarter.  The company appears to be performing well in all geographies that it operates, which is more than 200 countries around the world.  Coca-Cola’s dividend growth streak is second to almost none and the current yield is above that of the market.  Shares of the company are up 0.25% this year, a better performance than that of the S&P 500 and many of the stocks on this list.

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