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Studious income investors aren’t afraid of indulging a little when it comes to their dividends. Here are the top three dividends to get drunk on this summer.
With the S&P 500 offering an average dividend yield of just 2%, investors need to broaden their horizons when it comes to finding enticing dividend yields.
One overlooked area for dividends is alcohol stocks.
Some of the biggest beer, wine and liquor players are thriving, given the shift toward greater interest in premium alcoholic beverages. This includes the embrace of high-end liquor and wine, as well as craft beers. Over the long term, driven by a rebounding global economy, consumers should continue to trade up to the premium brands.
You’ll notice that the list below doesn’t include Constellation Brands (NYSE: STZ) and Brown-Forman Corporation (NYSE: BF-B), each of which offers dividend yields of just over 1%.
But it isn’t just the paltry dividend yields that make these two stocks less enticing. Both are up over 25% year-to-date and are two of the most expensive alcohol stocks in the market.
So, without further ado, here are the top three booze dividends:
Anheuser-Busch InBev SA (NYSE: BUD)
Anheuser-Busch pays a hefty 3.8% dividend yield. It has upped its annual dividend payment in each of the last five years. It’s one of the biggest beer distributors in the world, with 17 brands that each generates more than $1 billion in annual sales. It has a wide moat that includes global scale and market share dominance in Latin America.
Across the board, Anheuser-Busch is one of the best operators in the industry, with superior margins and returns on capital. It’s shown a resiliency for making smart acquisitions, including the purchase of Interview, Grupo Modelo and Oriental Brewery.
There are still plenty of opportunities for other acquisitions and to expand the distribution of its brands. The company tripled its Budweiser volume in China in less than three years.
Molson Coors Brewing Co. (NYSE: TAP)
Molson Coors pays a 2.3% dividend yield and is only paying out around 40% of earnings via dividends. It’s the fifth largest brewer in the world and has paid a dividend for 27 years.
Molson Coors is making a bigger push into the craft beer market and is seeing success with its Blue Moon and Leinenkugel brands. It also has its Redd’s fruit ales line, which it’s using to tap other areas of the market. With cash flow on the rise, Molson Coors recently put in place a $1 billion buyback plan, which it expects to complete within the next four years.
The other enticing thing about Molson Coors is that it’s one of the best-priced alcohol stocks in terms of valuation. It trades at a forward price-earnings ratio (based on next year’s earnings estimates) of 18.
Diageo PLC (NYSE: DEO)
Diageo also offers a 2.3% dividend yield. It has a three-year streak of dividend increases and has paid a dividend for 17 years now.
Diageo is a bit different, in that it’s not just a beer company, but a producer of premium liquor brands like Smirnoff, Johnnie Walker and Baileys, as well as the premium beer Guinness. Diageo is very much an emerging markets play, where consumer spending for premium spirits should rise over the next few years.
It has diversification across different spirits, which helps it remain profitable across the liquor cycles. For example, we’re currently seeing a shift toward brown liquor, a reversal of the vodka trend we saw in the 1990s. Nonetheless, Diageo is well positioned to benefit.
Not being afraid to indulge in sin stocks can reward your portfolio nicely. But for another way to bring in a consistent income stream from a diversified selection of dividend stocks, click here now.