There are quite a few FTSE 100 stocks I’d buy right now, but I reckon this could be the best opportunity of all. Global spirits giant Diageo (LSE: DGE) has so much going for it.
This is a stock I have admired for years. I held it some time ago, and sold at a fat profit. That was when I traded stocks more regularly. These days I prefer to buy and hold for the long-term, by which I mean decades. If I had £1k to invest today, or any other sum, I’d start with Diageo.
Diageo has taken a hit during the pandemic. In Europe, half of sales in are made in pubs, bars, and restaurants. That line of business dried up, as did duty-free sales when the global travel industry was grounded. Sales growth in supermarkets partly compensated. As the world edges out of lockdown, sales should pick up again.
Is this the best FTSE 100 stock of all?
This FTSE 100 stock’s brands roll off the tongue: Guinness, Captain Morgan, Baileys, Smirnoff, and Johnnie Walker, to name just a few. In total, it has more than 200, including plenty unknown to Britons that are a big deal in their home markets.
The Diageo share price crashed in March, along with a host of other FTSE 100 stocks. That’s what happens in a crash: the good is sold along with the bad. The trick is to buy the good ones, as they have the greatest recovery potential. Like Diageo.
Its share price inevitably picked up during the recovery in April and March, but remains around 15% below its pre-crash level. So you still have a buying opportunity.
The Diageo share price is currently valued at 20.5 times earnings. There are plenty of cheaper FTSE 100 stocks you can buy right now. However, the Diageo share price is actually cheap, by its own high standards. Typically, it trades at around 24 or 26 times earnings. That’s why I’d buy at today’s price.
Dividend and growth stock
Happily, Diageo has stood by its dividend, making its first half payment on 9 April, and upping its payout. Right now, it yields 2.4%, covered 1.6 times by earnings. Diageo always has a relatively low yield, but that is partly due to its strong long-term share price growth.
Happily, management is progressive, so you should be buying into a rising dividend over time. Diageo did scrap its share buyback programme, to conserve cash amid current uncertainty. I actually think that was a wise move.
My top FTSE 100 stock does carry a fair amount of debt. However it is not excessive, around £11.5bn for a £63bn company. Importantly, there are no financial covenants attached, so lenders cannot issue penalties or seize assets in an emergency.
I don’t see a looming emergency striking Diageo, but plentiful long-term growth and income prospects. This remains my favourite FTSE 100 stock of all.