Alcohol stocks have a number of characteristics that make them attractive picks for value and income investors.

The top alcohol stocks widely have leading brands which command pricing power, and the ability to cut costs to generate strong cash flow.

For example, Molson Coors (TAP) is a highly profitable beer company. With its strong profits, it returns cash to shareholders through dividends, while also investing heavily in new products. This makes Molson Coors one of the strongest alcohol stocks.

Brewing Hefty Profits and Growth

Molson Coors is one of the largest global brewers. It has a large portfolio of legacy beer brands including Coors Light, Coors Banquet, Miller Lite (through a joint venture), Blue Moon Belgian White, and Molson Canadian.

The U.S. beer industry is highly mature and saturated. This has weighed on Molson Coors, just as it has for the other domestic beer giants. The most recent quarter was a disappointment for the company. The fourth quarter was a disappointment for Molson Coors. Quarterly revenue of $2.4 billion declined 5% in constant currency year-over-year, and missed analyst estimates by $120 million.

Beer consumption overall is not growing much in the U.S., but there is a definable pocket of growth occurring for smaller craft beers. As a result, while Molson Coors’ growth has stalled out in recent years, the company is making investments in new categories to jump-start growth.

For example, in recent years Molson Coors has broadened its beer portfolio to include craft beers such as Hop Valley, and smaller brewers such as Creemore Springs. It has also moved into cider with Crispin Cider. Lastly, Molson Coors made a huge investment in an entirely new area of future growth—cannabis.

In 2018, Molson Coors announced a joint venture with HEXO Corp. to develop nonalcoholic, cannabis-infused beverages for the Canadian market. This is risky venture for Molson Coors that may not pan out, but it could also be a home-run if cannabis beverages become a meaningful trend.

Value And Income Stock

Molson Coors has a dividend yield of 2.7%, which is attractive for income investors as the S&P 500 Index on average yields just 1.9% right now. In addition, Molson Coors intends to return to dividend growth over the next year after its temporary debt-reduction period ends.

The stock is also attractive on a valuation basis. Molson Coors stock trades for a price-to-earnings ratio of 12, based on 2019 earnings-per-share estimates. We view fair value as a price-to-earnings ratio of 15.0, which means Molson Coors stock could generate returns of 4.3% per year just from expansion of its valuation multiple.

Combined with ~5% expected EPS growth each year and the 2.7% dividend yield, this leads to total expected returns of 12% per year over the next five years.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.