Stock market

Best FTSE buy for April: Diageo or Unilever?

With the 2024/25 tax year coming up on 6 April, UK investors have a whole new set of tax allowances. So, I’m looking at FTSE shares that my wife and I can add to our family portfolio.

Global value stocks look attractive.

When I look at US stocks, I see a lot of overvalued companies trading at record highs. with the S&P 500 Jumping 26.6 percent in 12 months, deep valuations among U.S. corporations aren’t easy to find.

Meanwhile, of the United Kingdom FTSE 100 Both historically and geographically there seems to be little value. For me today, Footsie is a target-rich environment to find value shares to generate decent returns in the future.

Ideally, I’m after solid, established businesses that trade at reasonable multiples of earnings and pay cash dividends to patient shareholders. Take, for example, these two global Goliaths, which have seen their share prices weaken over the past year.

1. Diageo

Diageo (LSE: DGE) is a leading buyer of alcoholic beverages including best-selling brands Smirnoff Vodka Gordon’s Jinn, Jonny Walker Wines, Guinness Strong, and Belize Irish cream.

Formed in 1997 by the merger of Guinness And Grand MetropolitanDiageo has been a FTSE 100 stalwart for decades and is today one of its 10 largest members.

Based on the current share price of 2,829.5p, Diageo’s fundamentals are:

Market cap £63bn
FTSE Ranking #8
Multiple earnings 20.3
Earnings production 4.9%
Dividend yield 2.9%
Dividend cover 1.7

However, due to declining sales in the Caribbean and Latin America, the shares are currently trading at more than 20 times earnings. This has dragged their earnings yield below 5%, thus covering the dividend yield at just 1.7 times historical earnings.

The growth spurt has sent Diageo’s share price down 22.3% over one year and 9.1% over five years. However, these returns exclude dividends, which climbed to a sixth (16.7%) from 2019 to 2023.

At a 52-week high, the share price briefly touched 3,779.5p on 25 April 2023, but is now 950p (-25.1%) lower. To me, Diageo stock looks oversold – which is why my wife and I own it, paying 2,806.6pa a share in December 2023.

Of course, Diageo’s sales growth could slow further, impacting earnings, profits, and cash flow. However, I am not concerned about short-term price volatility, as we are playing the long game.

2. Unilever

As one of the world’s largest FMCG (fast-moving consumer goods) companies, the multinational Unilever (LSE: ULVR) is a global beast. Notably, more than 3.4 billion people around the world use its products daily. In fact, when I look in my kitchen cupboards and bathroom cupboards, I see many brands of it.

Here are Unilever’s fundamentals, based on a share price of 3,819p:

Market cap £95.7bn
FTSE Ranking #4
Multiple earnings 17.4
Earnings production 5.8%
Dividend yield 3.9%
Dividend cover 1.5

Looking at the above figures, I see that Unilever is bigger than Diageo and has better earnings. However, its high dividend yield of around 4% per annum is covered by only 1.5 times trailing earnings.

Notably, Unilever’s annual cash payout grew by just 4.2% between 2019 and 2023. And like Diageo, sales growth has slowed significantly since the end of 2022. Even so, I’d buy Unilever stock over Diageo, in part because young people are drinking less alcohol these days.

That said, as we already own both customers’ stock, we don’t need to take any further action!


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