Beer has been with mankind since its accidental discovery some 6,000 years ago. The leading global seller of this 6,000 year old staple is Anheuser-Busch InBev (BUD). BUD’s U.S. listed ADR hit an all-time high last week based on several things.
1) The company announced a 26% increase to its dividend as management continues to target a dividend within the 3-4% yield range. Our investing focus is companies that pay a dividend, are committed to growing their dividend, and have the means to grow their dividend significantly over a long time. The 6,000 year demand for beer leads us to believe that Anheuser-Busch InBev (BUD) has the opportunity to grow their dividend for a very long time.
2) A new $1 billion share buyback plan. Not only is the company increasing their dividend but they are also buying back more shares in an effort to return as much capital as possible to shareholders. We also like companies that prudently buyback shares. Ideally we would love to be the last shareholder standing in any company we own, especially in Anheuser-Busch InBev.
3) A turnaround in the U.S. market, one of BUD’s largest markets. In 2013 U.S. beer volumes contracted by 1.8% and in 2014 volumes contracted by 0.6%. During the Q4 earnings call management stated that Q4 volumes rose 0.2% compared to the previous year. Even during declining volumes Anheuser-Busch InBev grew U.S. revenue. Now with volumes growing again, the U.S. turnaround will be very profitable.
Management is not done either. They are spending more money and effort to revive Budweiser sales.They are also dabbling in new technology to help grow sales of its other flagship brand, Bud Light. Anheuser-Busch Inbev launched a smartphone app where you can have up to 100 cases of Bud Light delivered to you within an hour.
4) Premiumization. Part of the U.S. turnaround and the growing revenue per hectaliter for Anheuser-Busch InBev is its premiumization efforts. BUD has been buying craft brewers and then using its world class distribution and production systems to lower costs and to expand the reach of its acquired brands. The acquired craft beer brands charge premium prices too.
5) The always present rumor of Anheuser-Busch Inbev buying SABMiller. It’s been a rumor for years but recent signals have people saying a bid for SABMiller is coming sooner rather than later. SABMiller tried to buy Heinenken to become too large for BUD to buy. BUD’s recent capital moves provoke speculation that they are giving shareholders a big boost now to retain future capital to fund the merger and handle integration costs.
If anything, the Brazilians running Anheuser-Busch InBev and 3G Capital are patient investors. They more than anyone know the benefits they could achieve if they merged SABMiller and Anheuser-Busch InBev but they will make their move when the time is right for them.
For the time being we’ll gladly accept the reduced share float and 26% dividend increase while we wait for a SABMiller bid to materialize.