Recent stock purchase

I added to my current holding in Diageo plc (DEO) last week; 7 shares at $106.96 for a total of $755.67 including fees.

About Diaego

With a $66B market cap, Diageo plc (DEO) is the world’s largest producer of alcoholic spirits with some famous brands including Smirnoff (vodka), Johnnie Walker (scotch whiskey), Baileys (liqueur) and Guinness (stout). It was formed in 1997 from a merger between Guinness and Grand Metropolitan, and for a period of time the company owned Pillsbury and Burger King. It reports in 5 regions: North America (47% FY15 Profit), Western Europe (27%), Asia Pacific (9%), Latin America (10%) and Africa / Eastern Europe (11%).

Diageo plc is a UK listed company with the symbol DGE in the UK – the US ADR is listed on the NYSE with the symbol DEO. The company has a 6-year US dividend history which has been affected by exchange rates; in the UK it is a 27-Year Dividend Champion.

The dividend is paid using the common UK bi-annual schedule which pays a smaller interim payment in April and larger final dividend payment in October. The current dividend is $3.4 for a yield of 3.13%, the final dividend paid on 10/14/15 was a little below the 2014 at $2.14 vs $2.16.

In US terms, the annual dividend increase over the last 5 years is 8%. DEO’s Free Cash-Flow payout ratio is 73.9%; this is an improvement from 2014’s 115% and returns back to 2013 levels.

Why I purchased

I wanted to add to the Consumer Defensive sector this month where I hold PG, KO, KMB, GIS, CLX and DEO as the total dividends were getting a little lower as a percentage of total dividends. To cut a short story even shorter; DEO met all of my criteria for yield, dividend growth / history, payout ratio and had the lowest P/E of all my stocks in that sector at 19.0.

Changes I’m making going forward

But. This purchase is quite likely the last stock purchase I’ll make for a while. I’ve been reviewing my asset allocation to individual stocks and I’m considering reducing it to the point of not buying any more individual stocks this year. I haven’t decided the final allocation yet and I’ll be thinking about this some more over the weekend. I’ll provide a justification for any changes in a future post when I update my financial Charter.

 

Quote of the day

Money can’t buy happiness. But it could buy me a boat, and a truck to pull it.

0 thoughts on “Recent stock purchase”

  1. Why the ADR and not the UK listed company?
    From google finance both have litle above 3% yield on the div.
    But on US, you have 30% tax on the div.

    1. Hi AS,
      I bought the ADR as it’s simpler overall for currency and taxes; I don’t have any UK accounts so I use my US brokerage for a flat $6.95 fee instead. The dividends are taxed at a qualified 15% rate since the ADR is listed on the NYSE. Some of the dividend is held back as foreign withholding but that can be claimed when filing taxes.

      There is a nominal yearly fee for holding an ADR but it’s very small.
      Regards,
      -DL

      Re-commenting as I keep getting my reply in the wrong location.

    1. Hi DFG,

      Yes I hope so too. I used free cash flow in my ratio when I calculated the payout at 73% where higher percentage values are tolerated. Morningstar gives the payout ratio as a lower 53% when using DPS / EPS values.

      Best wishes,
      -DL

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