The drinks industry might not be marked by fast-paced, high-growth businesses, but it is packed with strong brands producing solid cash flows and good dividends.
Here we’ll take a look at ten of the best on offer – and see what might make them a valuable addition to your own portfolio.
Anheuser-Busch InBev
The sheer size and scale of Anheuser-Busch InBev’s (BUD) business operations is truly something to marvel at.
The corporation accounts for 25% of global beer volumes, bringing in $100 billion of annual sales revenue from such household-name brands as Corona, Budweiser and Stella Artois.
Furthermore, the company commands a massive 47% slice of the US alcoholic beverage market.
BUD’s growth over the years has been electric, fueled by an aggressive flurry of mergers and acquisitions.
The present company really began in 2004 when Belgian brewing outfit Interbrew merged with Brazil’s largest brewing company AmBev.
From there the monolith proceeded to gobble-up Anheuser-Busch in 2008, as well as the Mexican Grupo Modelo in 2015.
More recently, Craft Brew Alliance was bought-out, adding craft beer brands like the Square Mile Cider Company and Redhook to its ever-growing portfolio.
With InBev’s use of zero-base budgeting to control costs and increase margins, investors can expect more M&As further down the line, as well as a canny approach to debt management that should reap capital appreciation in the near future.
Coca-Cola
The Coca-Cola Company (KO) has been such a profitable investment for Warren Buffett over the years that the famed investor has seen fit to make the business one of Berkshire Hathaway’s top-5 portfolio holdings
Not only that, the company also happens to be his longest-tenured holding, having been a presence in the Oracle of Omaha’s investment setup for over 32 years now.
And it’s not hard to see why. Coca-Cola’s highly reliable dividend is enough to make the firm a compelling buy on its own, but the company’s indomitable global brand moat really makes the beverage manufacturer stand out from the crowd. Coca Cola is produced all over the world – and there are very few countries where its beverages are not actually available for sale.
As for its previously mentioned dividend, Coca-Cola’s present yield sits at a very respectable 2.76%, and, being a Dividend King, it’s managed to increase its yearly pay-out for more than 50 years.
Coca-Cola should be seen as the perfect defensive stock for anyone’s portfolio, and, despite its high valuation rating at the moment, its cash generating ability will ensure the business stays around for many years to come.
Pepsi
Long seen as Coca-Cola’s closest competitor, PepsiCo, Inc. (PEP) differentiates itself from its pure-play soda rival by having a substantial stake in the food and snack industry, with its Quaker Foods and Frito-Lay snack brand helping the company outperform the lacking drinks trade in recent years.
Pepsi has bucked the general stock market trend lately in having grown its share value nearly linearly over the last twelve months.
The company is also relatively cheap at the moment, with a forward price multiple of just 3-times its consensus revenue per share estimate.
Boston Beer
The Boston Beer Company, Inc. has seen a turnaround in its fortunes lately, as demand for its Truly brand of hard seltzers has spurred its year-on-year revenue growth to 38% over the last twelve months.
The hard seltzer category is one of the fastest growing sectors in the drinks business, and with a 26% market share, SAM is the second-biggest player in the industry.
The segment is expected to continue expanding at a compound annual growth rate of 31% between 2021 and 2028.
However, 2021 could be a difficult year for Boston Beer – its shares fell after SAM revised down its EPS guidance from $2-$6 to a loss of $1, and the company also predicts its gross margins and shipment growth will be down for the rest of the year as well.
Willamette Valley Vineyard
Willamette Valley Vineyards, Inc. (WVVI) is an Oregon-based micro-cap wine producer operating in the super and ultra premium drinks market.
The company’s share price more than tripled between the start of 2020 and the end of 2021, and is up almost 30% over the past year.
However, the firm’s stock crashed since last November, losing half its value to trade at lows of just $8.90 today.
But it’s said that all clouds have a silver lining – and with news that Willamette Valley’s Turner facility recently finished construction of its 50,000 extra cases of fermentation capacity, the business is well-poised to make the most of its second largest harvest.
Founder and CEO of Willamette Valley, Jim Bernau, believes that comparisons with the company’s financial performance last year will continue to have a negative impact in the near-term, as the drop in net income of 49% this quarter attests.
But if supply chain shortages improve as expected, it could turn out to be a vintage year for the company in more ways than one.
Constellation Brands
Measured purely by the total volume of its sales, Constellation Brands, Inc. (STZ) is the largest importer of beer in the United States.
Unfortunately for the company, however, Constellation was hit hard during the pandemic, as its business mix was heavily exposed to the dining-out market, which naturally didn’t fare too well under lock-down and stay-at-home orders.
That said, as the economy starts to reopen again, the outlook for Constellation Brands should markedly improve. The firm’s year-on-year sales increases are almost stagnant, with revenue growth in the low single digits, and its net income margin just fractionally in the negative.
But most other metrics are going strong for the business, as its gross profit margin for the trailing twelve months is flying high at 53%, while its forward P/E ratio of 23 is much better than many of Constellation’s peers.
Importantly, STZ’s Chief Financial Officer, Garth Hankinson, remarked in the company’s latest earnings call that anticipated price increases would remain low, retaining customer loyalty, and hopefully helping drive the growth of its brands well into the future.
Diageo
Diageo plc (DEO) owns a wide-ranging portfolio of famous alcoholic brands that sell well in both Europe and North America. The business might not have had the best pandemic, but that hasn’t stopped its share price from growing 25% over the last year.
The company’s latest earnings results were also bullish, reporting revenues of £7.96 billion, up 16% year-on-year, and beating analyst expectations by £290 million.
Diageo’s profits of £0.85 beat predictions by £0.05 too, with the firm declaring that resilient demand for its products – especially trends in spirit consumption – helping to underpin the recovery in the off-trade business. Cost inflation was also minimized across the period, due mainly to price increases and savings in supply productivity.
The success of DEO’s premium brands will be a long-term opportunity for the company going forward, having accounted for 56% of net sales, and 74% of its organic growth, for the half-year ended 31 December 2021.
Brown-Forman
Finding the next breakout trend in consumer consumption habits is especially important in the drinks industry, and, with the rise of ready-to-drink (RTD) alcohol beverages, the Brown-Forman Corporation believes it has done just that.
The RTD market really took-off during the pandemic when drinkers found themselves deprived of their favorite cocktails, with bars and restaurants either closing down or shutting their doors in the face of restrictions. Seeking to capitalize on this trend, Brown-Forman purchased Part Time Rangers Holdings Limited, a New Zealand-based RTD manufacturer that makes all-natural, fruit-flavored cocktail drinks.
Similar to Diageo’s strategy of focusing more attention on its premium brand lines, BF is also in the process of trimming down its mass market products to load up on high-end names instead.
While there is a risk to this approach – Brown-Forman reckons that one reason for its declining sales in the Mexico market was due in part to drinkers shifting down to less expensive brands – it’s also the case that higher priced spirits saw 9-times faster growth than the total spirits category between 2010 and 2020.
Celsius Holdings
A big winner throughout the pandemic was Celsius Holdings, Inc. (CELH), whose straight-to-consumer sales channel helped the business capitalize on those COVID-driven stay-at-home tailwinds which saw more people ordering their grocery supplies online.
Celsius is mainly known for its range of clinically-proven health drinks and powder stick packets.
The company’s rise since the middle of 2020 has been meteoric to say the least, with its share price growing 1,000% in little more than a year. However, the brand suffered a brutal correction the last few months, falling 60% to where it sits today at $45 per share.
Its fundamentals are improving, however – and with year-on-year revenue growth at over 106%, expect a correction-to-the-correction anytime soon.
Molson Coors Beverage
Another large drinks manufacturer who has stumbled upon the realization that the “Above premium” market is where the profits are at is Molson Coors Beverage Company (TAP), the world’s fifth-largest beer producer, and owner of the Coors and Miller Lite lager brands.
Faced with the challenge of changing consumer tastes, the company has been overhauling its product mix the last couple of years under the guidance of then-newly installed CEO, Gavin Hattersley.
The solution to this problem was to lean more towards the premium alcoholic beverage market, while also expanding into the non-alcohol beverage segment too.
And it seems to have paid off. TAP’s premium portfolio now provides 25% of its total sales revenue, and its non-alcohol wing – which includes its ZOA and La Colombe brands – sold almost 2 million cases in the US during the first nine months of 2021.
Overall, the company is now in a position to pay down debt, having repaid in full its $1 billion 2021 maturing senior notes, and expects revenue to grow for the rest of the full year on a mid-single-digit basis.
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