If the Diageo (LSE: DGE) share price was a cocktail, the hangover would be horrible. It’s been giving investors headaches for three years now, falling more than 50% in that time.
Investors like me who’ve been waiting for the recovery have seen little respite. Shares in the FTSE 100 spirits maker are down 25% over 12 months, while the wider index has soared. Once again, Diageo’s been the party pooper.
It all went wrong after a profit warning in November 2023, as sales in Latin America and the Caribbean fell. Diageo’s focus on premium drinks backfired as cash-strapped customers traded down. Guinness is still popular, but it’s not enough to drown out falling demand across key markets including China, the US and Europe.
FTSE 100 straggler
Gen Z is starting to look very sober, There’s another existential threat. Fundsmith manager Terry Smith warned last year that “the entire drinks sector is in the early stages of being impacted negatively by weight loss drugs”. He dumped Diageo in response.
Q3 figures from 19 May offered a slice of hope. Organic net sales rose 5.9% in the third quarter, up from 1% in the first half. But that bounce was mostly due to phasing quirks that are expected to reverse. All regions showed pricing strength except Asia Pacific, where drinkers continued to downtrade.
Tariffs are wreaking havoc. Diageo faces a $150m hit, particularly affecting its Canadian whisky and Mexican tequila. The company said it can halve that with cost controls but now Donald Trump is ramping up the pressure again, and Diageo is on the slide.
CEO Debra Crew stepped down on 16 July. Her tenure was unlucky, but someone has to carry the can. Diageo has now brought back former CFO Deirdre Mahlan in an interim role, which may help settle nerves.
Stock value showing
There are reasons to stick around. The price-to-earnings ratio has fallen to just over 14, far cheaper than before troubles hit. The trailing dividend yield has crept up to 4.35%. That’s decent, but the forecast is a concern. The payout for the year to 30 June 2025 was cut from 103.48 US cents to 102.1 cents.
It’s expected to edge back up to 102.8 cents by 2027, but that’s hardly stellar.
| Year to 30 June | 2024 | 2025 | 2026 | 2027 |
| Dividend per share (US cents) | 103.48 cents | 102.1 cents | 102.5 cents | 102.8 cents |
Analysts remain split. Fundsmith’s Terry Smith has walked away, citing long-term structural concerns. Smith may have exited but another star fund manager, Nick Train, is holding firm, calling Diageo’s brands “unique and valuable”. Of the 24 brokers covering the stock, 12 rate it a Strong Buy. But three say Sell.
Consensus analyst forecasts predict a share price of 2,445p within a year. That would be a mighty 35% jump from today’s 1,830p. That would turn £10,000 into £13,500. A forecast yield of 4.35% would add another £435, lifting the total return towards £14,000. Of course, that’s not a promise.
I’m not topping up, but I’m not selling either. I want to prove I can hold my drink – and hope I’m still standing when the party finally gets going again. Or rather, if.
