Alcohol stocks have always been a major profit generator.
A Fortune 500 company, Constellation Brands is a prominent global producer and marketer of beer, wine and spirits. The company's operations are spread across the United States, Canada, Mexico, New Zealand and Italy.
What works for Constellation Brands is its portfolio of imported Mexican beers. These products contribute to a large portion of sales and operating profits. Constellation Brands has a three-year average revenue growth rate of 32.8%, almost thrice that of the industry.
Profits too have grown by nearly 40%, at a time when the industry's bottom line has dropped. The company is projected to grow earnings per share (EPS) by 17% annually for the next five years, much faster than Diageo (DEO) (9.6%), MGP Ingredients (MGPI) (15%), and Boston Beer Co. (SAM) (-1%).
Constellation Brands' near-term guidance also looks positive. It expects beer sales to grow by 9% to 11% this fiscal year. The company expects full-year EPS to be between $7.70 and $8.00. The consensus estimate is $7.51.
The company projects free cash flow of $725 million to $825 million for the period. Investors have cheered the company's financial performance, and the high-growth stock is valued at nearly 20 times forward earnings.
Anheuser-Busch InBev's scale and influence are attractive. The best way to play this stock, as it integrates new brands and re-organizes business, is as an income buy. With a dividend yield in excess of 3%, supported by a manageable payout ratio of 75%, Anheuser-Busch is a good stock to rely on if you are looking for stable income.
With an operating cash flow of $10 billion over the past 12 months, Anheuser-Busch InBev will continue to pay the dividends comfortably.
Over the years, Anheuser-Busch InBev has built leading positions in the most important markets in the world. Using a combination of solid organic growth and value-enhancing acquisitions, it allocates money to bankroll its brand recognition strategies.
Besides, the company has a disciplined approach to cost management and efficiency.
Due to Anheuser-Busch InBev's large size, it may not grow in the double-digits but the dividend is an excellent way to profit from the beer profit pool.
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