The Top 6 Beer Stocks For Dividends And Growth

Beer stocks, just like the beverages, come in several different forms. Companies that are engaged in the beer industry offer direct exposure through manufacturing and distribution of beer, while companies in adjacent industries offer indirect exposure through equity stakes in beer companies.

The beer industry is attractive for long-term income investors. Beer companies enjoy tremendous recession-resistance and consistent profits, which are used in large part to pay dividends to shareholders.

Beer Stock #6: Anheuser-Busch InBev SA/NV (BUD)

  • 5-year expected annual returns: 3.4%

Anheuser-Busch InBev SA/NV is the largest brewer in the world thanks to the 2008 merger of InBev and Anheuser-Busch and the 2016 acquisition of SABMiller. The company produces, markets and sells over 500 different beer brands around the world and owns five of the top ten beer brands and 18 brands with over $1B in sales. These include Budweiser, Stella Artois and Corona.

The company is also well diversified geographically, with about 70% market share in Brazil and 50% market share in the U.S. In 2018, revenue was globally sourced in the following percentages: 28.4% North America, 40% Latin America, 15.3% Europe, Middle East and Africa, and 15.5% Asia Pacific.

DEO Summary

Source: Investor Presentation

Second-quarter fiscal 2019 earnings were strong. AB InBev achieved solid growth as total revenue increased 6.2%, revenue per hl was up 3.8%, global brands grew by 8%, and they saw 11.3% growth outside of home markets, reflecting increasing global brand adoption. Total volumes overall were up 2.1%, driving EBITDA growth of 9.4% and EBITDA margin expansion by a very strong 123 basis points.

These results reflect the staying power of the company’s two main competitive advantages: a material cost advantage over its peers and its brand power. AB InBev’s production, distribution, and procurement scale are much larger than competitors, enabling it to exert both pricing power in sourcing its products as well as achieve economies of scale.

Its brand power is significant given that it owns five of the world’s largest beer brands, three of which are considered premium. These result in strong customer loyalty while also attracting many new beer consumers given their popularity and reputation for excellence.

Furthermore, the premium brands enjoy higher margins than non-premium brands, making them more profitable for the company and drive its superior returns on invested capital.

The main risk for AB InBev is its significant international exposure, meaning that fluctuating foreign exchange rates materially impact its results. The company is also highly exposed to Latin America (48% of EBIT), making it heavily dependent on one of the more economically and geopolitically volatile regions of the world.

Overall, we expect the company to deliver 3.4% annualized returns over the next half-decade as the 2.1% dividend yield and the 3% expected annual earnings-per-share growth will be somewhat offset by a 1.4% annual headwind from a compressing valuation multiple.

Beer Stock #5: Constellation Brands (STZ)

  • 5-year expected annual returns: 3.9%

Constellation Brands was founded in 1945 and has grown into a global alcoholic beverage giant, producing and distributing over 100 brands of beer, wine, and spirits, including Corona, Modelo Especial, Modelo Negra, Pacifico, Ballast Point, Funky Buddha Brewery, Robert Mondavi, Clos du Bois, Kim Crawford, Mark West, Black Box, SVEDKA Vodka, Casa Noble Tequila and High West Whiskey. The company also has a stake in cannabis company Canopy Growth.

Q1 fiscal year 2020 results for the period ending May 31st, 2019 included $2.097 billion in total sales (2% year-over-year growth), 7.4% year-over-year growth in beer sales, flat year-over-year earnings-per-share of $2.21, and updated guidance for FY 2020 that raised the midpoint earnings-per-share number by $0.15 to $8.80. The beer business (70% of total sales) is expected to grow at a solid clip while wine and spirits are both expected to decline due to dispositions.

Constellation Brands has enjoyed strong growth over the past decade, and it expects to continue leveraging its strong brands portfolio (including six of the top fifteen imported beer brands in the United States) to continue its impressive growth streak. A strong growth tailwind will be the demographic shift towards more Hispanics and Millennials in the United States, both of which tend to consume more of the company’s products than the rest of the population.

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David B. Johnson 1 year ago Member's comment

Beer... a consumer good that does great in both good times and bad!