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As if we Diageo (LSE: DGE) shareholders haven’t had a tough sufficient time these days, a brand new potential menace looms on the horizon. That’s the US presidential election subsequent week. Ought to I promote this FTSE 100 inventory earlier than then? Right here’s my take.
Tariff man
On 5 November, the US will elect its subsequent president. In line with the polls, it’s too near name. However a Donald Trump victory might trigger a good bit of volatility within the Diageo share value.
That’s as a result of he’s promised to impose a ten%-20% tariff on all imports coming into the nation (and 60% from China!). He’s even declared himself “Tariff Man“.
In fact, we don’t know who will win the election or the precise particulars of the proposed import tariffs. However the US is Diageo’s key spirits market, so this example would have implications for the corporate. It might probably compel the agency to boost costs on a few of its key merchandise stateside, probably decreasing gross sales.
Economists warn these tariffs would trigger a spike in inflation, as nations retaliate and corporations cross on rising prices to customers. For sure, this wouldn’t be a terrific backdrop for Diageo (and sure many different companies).
Protected designation of origin
Some drinks famously have protected origin of standing, which suggests they’re recognised as distinctive to a particular geographic area and can’t legally be produced elsewhere (within the US, say) underneath the identical title. These embrace champagne, Scotch whisky, and tequila (from France, Scotland, and Mexico, respectively).
Diageo owns main manufacturers in Scotch (Johnnie Walker) and tequila (Don Julio and Casamigos), and has a big stake in Moët Hennessy, the proprietor of Hennessy cognac and Moët & Chandon champagne.
From what I can collect, round 1 / 4 of Diageo’s gross sales could possibly be affected by these proposed tariffs.
Business-wide slowdown
It’s arduous to be very bullish on the shares within the close to time period. Even administration is warning of one other “difficult” yr arising. The share value has already fallen 23% within the final yr.
But it’s vital to keep in mind that the entire business has been in a downturn. The issue isn’t particular to Diageo. Right here’s how the share costs of different giant booze companies have fared over the previous 5 years.
- Pernod Ricard -30%
- Remy Cointreau -51%
- Brown-Forman -33%
- Heineken -17%
- Anheuser-Busch Inbev -23%
The world’s largest alcohol firm, baijiu producer Kweichow Moutai, has carried out higher. Its shares are up 30% in 5 years, however the agency has nonetheless been battling sluggish demand in its dwelling market of China.
Ought to I name time?
Diageo inventory appears good worth to me, buying and selling at 16.6 occasions forecast earnings for FY26, with a potential 3.56% dividend yield. The enterprise stays extremely money generative, with a lot of its high manufacturers nonetheless dominating their classes, so I’m hopeful the dividend can continue to grow long run.
Due to this fact, I’m not going to promote my holding, regardless of the looming menace of tariffs. Actually, if Trump wins and the inventory falls additional (pushing the dividend yield in direction of 4%), I’ll probably add to my place.
