E Anheuser-Busch InBev: Undervalued Dividend Stock

For many income investors, dividend cuts are the worst outcome when investing in the stock market. A company that cuts its dividend not only means shareholders receive less income, but a dividend reduction is usually accompanied by a drop in the share price.

But in some cases, stocks that cut their dividends can also enjoy a strong recovery, if the dividend cut represents the bottom for the company and its share price. Anheuser-Busch InBev (BUD) recently cut its dividend, and the stock has declined approximately 36% year-to-date. But AB-InBev remains a global leader in its industry, with durable competitive advantages and a huge portfolio of billion-dollar brands.

And, AB-InBev is in the middle of a turnaround which could lead to a return to future growth. In the meantime, the stock appears to be undervalued, with a dividend yield above 3%. As a result, AB-InBev is a turnaround stock that value and investors should take a closer look at.

BUD Falls Flat

Anheuser-Busch InBev SA/NV is the largest beer brewer in the world. The company was formed in 2008 by the merger of InBev and Anheuser-Busch and is majority-owned by 3G Capital. In 2016, the company acquired SABMiller. Today, AB-InBev produces, markets and sells over 500 different beer brands around the world. Major global brands include Budweiser, Stella Artois, and Corona.

The past year has been extremely challenging for AB-InBev. After the huge acquisitions of SABMiller and Grupo Modelo, AB-InBev became saddled with a huge level of debt. To pay down debt, the company had to raise as much cash as possible, which included a significant reduction in the company’s dividend payment to shareholders.

If that weren’t bad enough, AB-InBev has had to deal with the coronavirus crisis. Stay-at-home orders and lockdowns in multiple cities and states across the U.S. dealt a severe blow to the company’s businesses as it pertains to restaurants, bars, stadiums, and other venues. In the first quarter, total revenue declined 6% from the same quarter last year. The decline was due to a 10.5% decline in beer volume, a 0.2% decline in non-beer volumes, and a 9.2% decline in third-party products. Making matters worse is that AB-InBev swung to a loss of $1.13 per share.

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Rick A. Schneider 1 month ago Member's comment

I would have thought that a lot of people would have turned to alcohol during these difficult time.