Dividends and the liquor sector is losing its buzz

For many years, a recession proof portfolio included alcohol and cigarette companies because people consumed the products no matter the size of the taxes governments put on the products. In the interests of health, governments increased taxes and we consumers just paid for there was seemingly little choice. Bars, warm weather, sporting events and social gatherings invariably had an alcohol component, even if the desire was not to get drunk.

If you look around at the companies supplying the products it was a good investment in the Anheuser-Busch, InBev SA, Diageo, and Molson Coors Brewing Co. However an investment in those companies in the past 5 years has lagged behind the market.

A better investment has been caffeine. In an column by Ian McGugan, he examined the caffeine market. Between May 2014 and May 2019 a portfolio of Coca-Cola, Monster Beverage Corp and Starbucks would have generated an average total return of 20% beating the S&P 500 on 16.1%. If you picked Pepsi rather than Coke, the percentage would have been higher.

Mr. McGugan writes when an industry has to scramble for growth by gutting one of the key aspects of its traditional offerings, it is arguably time to look elsewhere for profits.

The issue is not the global drinks industry will not make money, the question is are there better opportunities to make more elsewhere in the drinks sector? The best performing S&P 500 stock this century is Monster Beverage (Coca-Cola has a 17% stake) with more than a 60,000% gain since 2000. The stock has gone from $1.00 to over $60 a share.

Linking to dividend paying stocks, many areas the companies which pay dividends are in mature industries and when you invest you are trying to pick the best of the breed or the best of profit making companies. Most of us do not have money to buy everything, thus we make choices. When it comes to making choices, ask where is the growth coming from? If it comes from a tradition area of profit making area then you can ask what are the alternatives? There is no rush to move because the companies still generate profits, but it is important to note which alternatives you choose.

There are more questions than answers, till the next time – to raising questions.


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