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As if we Diageo (LSE: DGE) shareholders haven’t had a tough sufficient time recently, 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 response to the polls, it’s too near name. However a Donald Trump victory may trigger a good bit of volatility within the Diageo share worth.
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 will possible compel the agency to boost costs on a few of its key merchandise stateside, probably lowering gross sales.
Economists warn these tariffs would trigger a spike in inflation, as international locations retaliate and corporations move on rising prices to customers. Evidently, this wouldn’t be an awesome backdrop for Diageo (and sure many different companies).
Protected designation of origin
Some drinks famously have protected origin of standing, which implies they’re recognised as distinctive to a particular geographic area and can’t legally be produced elsewhere (within the US, say) below the identical title. These embody 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 might be affected by these proposed tariffs.
Trade-wide slowdown
It’s onerous to be very bullish on the shares within the close to time period. Even administration is warning of one other “challenging” 12 months arising. The share worth has already fallen 23% within the final 12 months.
But it’s vital to keep in mind that the entire trade has been in a downturn. The issue isn’t particular to Diageo. Right here’s how the share costs of different massive 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 executed higher. Its shares are up 30% in 5 years, however the agency has nonetheless been battling sluggish demand in its residence market of China.
Ought to I name time?
Diageo inventory seems 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 prime 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. In truth, if Trump wins and the inventory falls additional (pushing the dividend yield in the direction of 4%), I’ll possible add to my place.
