Belgium is probably best-known for its delicious nomorewaffles, chocolate, fries and beer – all food and drinks, I guess that tells a lot about us. Because I am a patriotic bastard I’d like to focus attention towardsour rich beer heritage. Indeed, itshould come as no surprise that the world’s largest brewer comes from humble Belgian beginnings. What’s more, brewer InBev sports a solid dividend history that many international dividend growth investors overlook.
Anheuser-Busch InBev (EBR:ABIor NYSE:BUD), or AB InBev for short, is a Belgium-based multinational beverage and brewing company. With a 25% global market share, ABInBev currently is the world’s largest brewer with 17 of its brands generating over 1 billion Dollars in revenue each. The brewerboasts an impressive dividend history with at least 15years of consecutive dividend growth.
After the 2007 acquisition of American brewer Anheuser-Busch by the Belgian-Brazilian InBev,the newly formed business quickly consolidated its worldleading position.InBev’s market capitalisation is a whopping 181 billion Euros, ahead of its two closest competitors SABMiller (LON:SAB) and Heineken (AMS:HEIA), which boast a market cap of80 billion Euros and 42 million Euros respectively.
Over 155,000 employees located in 25 different countries contributed to sales worth up to 47 billion Dollars in financial year 2014 . During the same time frame, InBev managed an EBITDA of 18.5 billion Dollars, up 6.6% from one year earlier.
InBev’s roots date all the way back to the Den Hoorn brewery established in 1366, which many beer lovers will instantly recognise as the date printed on the premium lager Stella Artois. As such, InBev believes that its heritage and age-old quality are at the core of its business.By staying true to exceptional quality, InBev hopes to be the best beer company bringing people together for a better world.
In the recently released 2014 annual report, the Belgian brewerattributes much of its success to its long-term mindset. InBev wants to “create a company that can stand the test of time and create value [for] shareholders, not only for the next 10 or 20 years but for the next 100 years.” During the past decadeInbev has indeed managed to do so through organic growth and through market-changing acquisitions.
As is the case with many consumer goods companies, AB InBev strongly relies on its brand portfolio. The company enjoys strong global presence through the Budweiser, Corona and Stella Artois brands, while international brands Beck’s, Leffe and Hoegaarden round out the portfolio. On top of that, InBev also tries to build local champions like Bud Light and Jupiler.
The global presence of Anheuser-Busch InBev becomes clear when looking at its top markets. InBev’s performance is particularly strong in the USA (46.4% total beer market share), Canada (42.1%),Mexico (57.8%), Brazil (68.2%), Argentina (78.1%), Belgium (55.7%) and South Korea (60.4%). The top four markets account for about half the beer sold around the world.
Investors looking for stable dividend income will be happy to hear that InBev tries to use its established moat to reach a low-volatility dividend yield that is in line with other large cap consumer goods companies. Currently, the company pays a dividend of€3.00 forfinancial year 2014, which gives new investors a gross yield of 2.65% at InBev’s current price of €113.10.
Even though the initial yield isn’t especially high, it’s the enormousgrowth rate of the distributions that should win long-term dividend investors over. Indeed, InBev managed to increase its dividend by 30% on average over the past five years, which shows thatit truly is committed to creating shareholder value.
Whilethe dividend payout had a bumpy ride during the acquisition of Anheuser-Busch in 2007, InBev still sports a 10-year DGR of 20%. That’s particularly impressive when considering the aforementioned acquisition and the fact that the brewer’s pay-out-ratio remains a healthy 64.8% for financial year 2014.Even though it’s likely that InBev won’t be able to continue growing its distributions at the same rate, organic earnings growth should still deliver asolid growth rate over the long-term.
Since InBev’s dividend growth history dates back at least 15 years – the exact time frameis hard to determine past the introduction of the Euro in 1999 – investorscan indeed reasonably rely on continued growth. The non-cyclical and defensive nature of the brewer’s business furthermoremakes an investment in Anheuser-Busch InBev a relatively low-risk addition to any dividend investor’s portfolio.
Indeed, most of InBev’s risks are limited to increased government scrutiny, antitrust and competition enforcement, and a failure to address changing consumer preferences and tastes. However, over time the brewer has shown to quickly adapt to changing market situations and the introduction of new health care policies geared towardsalcoholic beverages.
Investors willing to take on these risks and looking for a high-quality consumer goods company can add Anheuser-Busch InBev AB to their portfolio by either buying the shares from Euronext Brussels (EBR:ABI)or the New York Stock Exchange (NYSE:BUD). Under Belgian tax law the dividends are subject to a 25% withholding tax, but for many international investors a reduced rate of 15% applies.
How do you feel about adding AB InBev to your portfolio? Do you consider it a good long-term defensive investment?
