Beverage stocks are the companies which produces, distributes, and sells beverages. These companies carry out their operations in beverage industry, encompassing wide range of products. Products of such companies include soft drinks, alcoholic beverages, coffee, tea, etc. Global beverage market should be able to compound at ~3.47% from its initial value of US$1,568.389 billion in 2021 to touch reach US$1,991.845 billion in 2028. As a result of higher disposable income, and shift in consumer preferences to ready-to-drink beverages, principally in developing and emerging economies, this market should grow at fair rate throughout forecast period. Rising per capita consumption of alcoholic beverages and preferences of consumers for premium products should help in market expansion. Some of the best beverage stocks have sound and stable dividend history, making the investment optimum for value investors.
That being said, increased health concerns regarding sugar content of packaged beverages, and health worries regarding alcohol usage can impact the expansion rate of market during projection period. However, new launches of new products in non-alcoholic segment, including drinks having lower sugar content, should help generate several opportunities for market during mentioned period and beyond. There are some of the best beverage stocks who have announced plans to provide low and zero-sugar variations of sparkling brands in next 2 years. Global beverage market is expected to be supported by increased adoption of fruit-based beverages.
With this in mind, let us now have a look at best beverage stocks with sound dividend history.
1. Diageo plc
The company has been categorised as world’s leading producer of branded premium spirits. The company produces and markets beer and wine too.
In FY23, the company saw net sales of £17.1 billion, exhibiting a rise of 10.7%, primarily exhibiting strong organic net sales growth, and favourable impacts from foreign exchange. Organic net sales of the company went up by 6.5%. Price/mix of 7.3 percentage points exhibits high single-digit contribution from price and premiumisation. Reported volume of the company de-grew by 7.4%, and organic volume saw a decline of 0.8%.
Organic operating profit saw an increase of 7.0% and organic operating margin expanded by 15 basis points as a result of disciplined cost management. Price increases have offset absolute cost inflation impact on gross margin. The company stated that growth in organic net sales was delivered throughout most categories, mainly in 3 largest categories: scotch, tequila and beer.
Free cash flow of the company came in at £1.8 billion, exhibiting a decline of £1.0 billion as strong growth in operating profit and favourable FX impacts were offset by increased year-on-year working capital outflows, tax and interest payments, along with capital investment. The company ended the quarter with strong balance sheet, with leverage ratio of 2.6x as at 30 June 2023, at lower end of its target range, because of strong operating profit performance.
The company completed a total of £1.4 billion return of capital in FY23, that included £0.9 billion related to completion of £4.5 billion multi-year programme, and returned additional £0.5 billion during 2H. It has announced new return of capital programme of up to $1 billion.
2. Archer-Daniels-Midland Company
The company has been categorised as major processor of oilseeds, corn, wheat, and other agricultural commodities. It owns extensive network of logistical assets to store and transport crops around globe.
The company reported financial results for quarter ended June 30, 2023, with net earnings coming at $0.9 billion and adjusted net earnings at $1.0 billion. Through its 2Q results, the company showed that diversity of its business portfolio and its integrated value chain enabled the company’s team to consistently deliver excellent results, even in dynamic market conditions.
2Q23 EPS as reported came in at $1.70, which includes $0.17 per share charge associated with impairments, restructuring, and contingency loss provision related to import duties, a $0.02 per share profit on sale of certain assets, and $0.04 per share tax expense associated with some discrete items. Adjusted EPS, excluding these items, came in at $1.89.
3. The Kraft Heinz Company
Kraft merged with Heinz and the result was a third- largest F&B manufacturer in North America behind PepsiCo and Nestle and 5th largest player in the world.
In 2Q23, the company’s net sales grew by 2.6% and organic net sales went up by 4.0%, with gross profit margin increasing 337 basis points to 33.6% and adjusted gross profit margin rising 180 basis points to 33.3%. Net income of the company grew by 277.0%, while adjusted EBITDA of the company saw an increase of 6.0%. The company saw strong 2Q results, improving net sales, profits and profitability. This was consistent with its strategy to ramp up profitable growth. Importantly, the company was able to grow profits, while investing in marketing, research & development, and technology, which it financed through gross efficiencies.
Growth in net income/(loss) was because of lapping non-cash impairment losses in previous year period, increased adjusted EBITDA versus the prior year period, and unrealized gains on commodity hedges in the current year period compared to unrealized losses on commodity hedges in the prior year period.
For FY23, the company anticipates organic net sales growth of between 4% – 6% against the prior year.
Adjusted EPS of the company is expected between $2.83 – $2.91, including negative impact of ~$0.04 from expected unfavorable changes in non-cash pension and post-retirement benefits. The company saw currency headwind of ~$0.02 at current FX rates.
Conclusion
Best beverage stocks are expected to see strong user penetration and higher average revenue per user in upcoming years. Launches of new non-alcoholic products, including those which have healthier content and based on fruits, should generate several chances for best beverage stocks during 2023-2028.
Demand for fruit-based beverages having reduced sugar content might eventually increase because of growing health concerns regarding sugar level of packaged beverages and consumption of alcohol.
By geography, beverage market has been bifurcated in North America, South America, Europe, the Middle East and Africa, and Asia Pacific. North America gets further classified in US, Canada, and Mexico. North America has been categorised as significant market for beverages because of growing awareness of health and wellness.
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