UPDATE: Investors are questioning whether to buy Diageo (LSE:DGE) stock, currently offering a 4.7% dividend yield, amidst significant market challenges. The iconic beverage company is on track for its fourth consecutive year of negative returns, with shares plummeting 35% year-to-date.
Recent reports reveal that Diageo’s share performance has raised concerns among investors. The company, known for its strong portfolio of alcohol brands, is struggling with stagnant sales. In its latest fiscal FY26 Q1 trading update, Diageo reported flat organic net sales, highlighting notable weaknesses in the Asia Pacific region and a decline in the Chinese white spirits market. Despite some progress in Latin America, Europe, and Africa, the company’s key North American market continues to face softness, leading to revised guidance for the fiscal year.
As of June, Diageo’s net debt soared to $21.9 billion, with a concerning leverage ratio of 3.4 times adjusted EBITDA. This level of debt raises questions about financial flexibility, prompting Diageo to target a reduction to between 2.5 to 3 times by FY28. The planned sale of its East African Breweries stake for $2.3 billion in 2026 is expected to aid this effort.
Adding to the uncertainty, new CEO Sir Dave Lewis will officially take the helm in January. Analysts speculate that he may consider cutting the dividend to strengthen the balance sheet. “Buying this stock anticipating a 4.7% yield may lead to disappointment,” warns a market expert.
Despite these concerns, there may be a silver lining for potential investors. The current stock price trades at 13 times forward earnings, a valuation many consider too low for a company of Diageo’s caliber. With the stock significantly depressed, some analysts believe a recovery could be on the horizon, especially as Diageo prepares to report its first-half earnings in February 2026.
As the festive season approaches, consumers are likely to continue enjoying Diageo’s popular brands such as Guinness and Tanqueray. Investors will be watching closely for further developments regarding management’s strategy and the potential for a rebound.
For those considering an investment, the upcoming earnings report will be crucial in assessing Diageo’s future. In the meantime, many are exploring other opportunities while monitoring the shifts in this high-profile market.
Stay tuned for updates as this story develops, and be sure to share your thoughts on Diageo’s prospects!
