With a possible global recession looming, it’s an opportune time for investors to consider defensive stocks that can withstand economic downturns. Investors looking for stability in times of volatility could consider beer stocks, as the beer industry broadly generates steady profits even during recessions.
These 3 beer stocks have long histories of navigating downturns, while paying investors attractive dividends.
Beer Stock: Molson Coors (TAP)
Molson Coors Brewing Company was founded all the way back in 1873 and has since grown into one of the largest U.S. brewers, with a variety of brands including Coors Light, Coors Banquet, Molson Canadian, Carling, Blue Moon, Hop Valley, Crispin Cider, as well as the Miller brands including Miller Lite.
On May 3rd, 2022, Molson Coors reported first quarter results for the period ending March 31st, 2022. For the quarter, the company generated net sales of $2.2 billion, a 16.7% increase compared to Q1 2021.
Net sales were up 8.5% in North America, and 84% in Europe, the Middle East and Africa, and Asia-Pacific. Adjusted EPS equaled $0.29 versus $0.01 in the same quarter last year. The company expects sales to increase by a mid-single digit rate for 2022, on a constant currency basis.
With several top brands, Molson Coors can pass higher costs on to consumers. The company is also aggressively cutting costs in other parts of the business to offset raw material inflation. Molson Coors still has many competitive advantages. It has a number of popular brands, including Coors Light, which was the #2 selling beer brand in the U.S. in 2021. Molson Coors has an extensive production and distribution network, providing the company with economies of scale.
Molson Coors stock currently yields 2.6%, and the company recently increased its dividend by 12%. We expect total returns near 10% annually for Molson Coors stock, comprised of dividends, 4% expected EPS growth, and a boost from an expanding P/E multiple.
Beer Stock: Constellation Brands (STZ)
Constellation Brands produces and distributes over 100 brands of beer, wine, and spirits, including Corona, Modelo Especial, Modelo Negra, Pacifico, Ballast Point, Funky Buddha Brewery, and more. It is a diversified beverages company.
In a highly competitive U.S. beer, wine, and sprits market, Constellation Brands has differentiated itself with a focus on what the company describes as “premiumization” trends. This means the company is pursuing growth in the high-end of the beer, wine, and spirits categories.
Constellation is expecting to invest $5.0 to $5.5 billion over fiscal 2023 to fiscal 2026 on expanding capacity in Mexico. This will support an additional 25 million to 30 million hectoliters of total capacity.
It also includes construction of a new brewery in Southeast Mexico, and continued expansion and construction at existing sites in Nava and Obregon. These investments will support future growth for the company’s high-end Mexican beer portfolio.
In the most recent fiscal year, the company recorded $8.8 billion in net sales, a 2% increase compared to the previous year. Beer sales led the way with 11% growth. Adjusted earnings-per-share increased 2.3% for the full fiscal year. Constellation Brands expects $11.20 to $11.50 in adjusted EPS for the upcoming year. In addition, beer sales are anticipated to increase 7% to 9% this year.
We expect mid-single-digit total returns for Constellation Brands stock, comprised mostly of earnings growth and the 1.5% dividend yield.
Beer Stock: Diageo (DEO)
Diageo is one of the oldest and largest alcoholic beverages companies. It dates all the way back to the 17th century and today owns 20 of the world’s top 100 spirits brands. Diageo manufacturers popular spirits and beer brands, such as Johnnie Walker, Smirnoff, Captain Morgan, and Tanqueray. Its major beer brand is Guinness.
First-half ‘22 sales increased 15.9% with organic growth up 20%. Organic volumes were up 9.3% as the company lapped a challenging period as a result of the COVID-19 pandemic. Each region had at least 13% organic sales growth, led by a 45% improvement in Latin America and a 27% gain in Europe.
We estimate 8% annual earnings growth through 2025, comprised of mid-single-digit organic revenue growth, margin expansion, and resumption of share repurchases.
Similar to its peers, Diageo’s strong growth is driven by its brand power and lower cost competitive advantages. The company enjoys strong consumer loyalty and new consumer preference. Plus, the company’s large global volume gives them strong margins and economies of scale.
Diageo’s primary catalyst for earnings growth is the emerging markets. Emerging markets such as Latin America, China, and India have huge growth potential for Diageo, as these regions have large populations and rapidly-expanding middle classes. Share repurchases will also fuel earnings growth.
Diageo pays a semi-annual dividend. The stock has a dividend yield of 1.6%. Overall, we see the potential for 6%-7% total returns, driven by high single-digit EPS growth, plus dividends.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
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