Shares: 28 (this transaction) and 68 (entire holding)
Predicted annual dividend income: £15.29 (this transaction) and £37.14 (entire holding)
Christmas and New Year is coming and the drinks, no doubt, will be flowing for many of us. I intend to be part of that trend as usual (indeed, yesterday enjoyed a couple of pints of Guinness).
However, most of my alcohol-related funds over December will not be going through the pubs and supermarkets but the stock market. This is because I have topped up my holding in drinks giant Diageo.
I already opened a position in Diageo back in October during the market correction which resulted in very significant market-wide drops. As a result, Diageo hit a delicious price of around 1700p per share which I found difficult to resist.
So why top up again in December? Well, quite simply because the prices took a dive again in the middle of the month. Although not quite as sharp as before it still drew Diageo down below 1800p per share which I thought was an opportune time to top up.
So how do the numbers look?
Relatively Stable Earnings
Well, in reality they are not s nice looking as with my first purchase a couple of months ago. Partly this is due to the higher share price now but also due to the fact that the analysts have revised their EPS predictions down quite a bit since then.However, they still don't look too bad. Here is for next year:
| EPS | P/E Ratio | |
| Consensus | 95.7 | 18.51 |
| High | 102.4 | 17.30 |
| Low | 91 | 19.46 |
| Difference (%) | 12.17 |
The revision down to 95.7p per share as opposed to the 97.91p per share EPS prediction does affect the predicted P/E ratio I purchased on. However, even then I still consider a P/E of 18.5 not too challenging for a company of Diageo's quality and defensive nature. Indeed, it still remains cheaper than others in the sector (such as SABMiller).
For the year after analysts are predicting growth to be returning at a quicker pace leaving us with these predictions:
| EPS | P/E Ratio | |
| 103.59 | 17.10 | |
| High | 111.8 | 15.84 |
| Low | 96.45 | 18.36 |
| Difference (%) | 15.33 |
What I do like about the predictions for the future is the narrow difference in the predictions (i.e. 12% and 15%). This is, sort of, to be expected for a stable defensive like Diageo.
However, it provides a little more confidence as even if the lowest predictions are a truer reflection we still only have P/E ratios of about 19.5 and 18.4 for this year and next. For me, these are not overly demanding.
Dividends
So what about the all important dividends? Well these have also been revised down a little since October. However, they still show a pretty healthy picture going forward.
Currently Diageo is predicted to throw out a dividend of 54.62p for this year coming and 58.74p for the year after. Both represent an annual growth of about 7% which is very nice indeed.
What is more, on my purchase price they represent a solid yield of 3.08% and 3.32% for this year and next. Again, not bad even if not exactly world-beating.
Happily, as well, the cover remains at about 1.75 times earnings which is, for such a defensive company, very well covered indeed.
Diageo and my Goals
Dividend-wise Diageo will not contribute anything to my dividend total for 2014 but obviously will next year. However, its yield of about 3% will mean that it does slightly pull me away from my target of having a portfolio yield of about 3.5%. However, it is not by a great deal.
With regards to volatility things are very good, however. With a Beta value of about 0.66 it will positively contribute to my target of having a portfolio volatility of 0.85 or less. This is excellent.
Overall, I am very happy with my Diageo top up. It offers a solid and consistent yield. Consistent if unspectacular growth prospects both in the earnings and dividend front and low volatility. All in all, a solid portfolio holding!
[Creative Commons image reproduced from Flickr user Stephen Edgar]
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