RNS re Diageo announces next phase of return of capital programme posted on Company News.

[idpickering]

Here; viewtopic.php?p=481806#p481806

I hold these in my HYP, even though nowadays they don't offer a high yield, and have held them for a long time.
The comment re a special dividend is very interesting.

Diageo plc (Diageo) today announces that it is commencing the third phase of its previously announced return of capital (ROC) programme of up to £4.5 billion to shareholders to be completed during fiscal 23.

Under the first two phases of the ROC programme, which were completed on 31 January 2020 and 11 February 2022 respectively, Diageo repurchased shares with an aggregate value of £2.25 billion.

Diageo is announcing today that it has entered into a non-discretionary agreement with UBS AG London Branch (UBS) to enable the company to buy back shares with an aggregate value of up to £1.7 billion, of which the repurchase of shares with an aggregate value of up to £1.4 billion will be completed by 30 June 2022. In each case the aggregate value of shares repurchased will be net of any fees payable to or by UBS under the terms of the agreement. This agreement will commence on 21 February 2022 and will end no later than 5 October 2022. The purpose of the repurchases is to reduce the share capital of Diageo and all shares repurchased under this agreement will be cancelled.

Further execution phases of the ROC programme, utilising the most appropriate mechanic of either share buybacks or special dividends depending on market conditions, will be subject to future announcements.

Ian.

[ADrunkenMarcus]

Thanks for sharing.

They have mentioned the consideration of buybacks or special dividends before. They clearly seem to prefer buybacks at this point. Diageo's market cap is almost £85 billion, which means that the £4.5 billion return of capital programme accounts for 5.2 percent of the current market cap. (I'm aware we're in the third phase.)

Diageo is trading on a 3.1 percent free cash flow yield at present, rising to 4 percent on forecasts for 2024. Their net debt is forecast to fall from about 4.8 times free cash flow in 2022 to about 3.8 times free cash flow in 2024, so they appear to be deleveraging somewhat as well (not in absolute terms but proportionally, by growing free cash flow). I'm not too concerned about it because Diageo has a very stable earnings base and should be able to service the debts, but we don't want them to be in a position where they are spending too high a proportion of their free cash flow on costs of borrowing. They have got a 12 percent cash return on invested capital for 2021, so that is a sign they are allocating their investment reasonably.

Best wishes


Mark.

[idpickering]

Thanks for sharing.

They have mentioned the consideration of buybacks or special dividends before. They clearly seem to prefer buybacks at this point. Diageo's market cap is almost £85 billion, which means that the £4.5 billion return of capital programme accounts for 5.2 percent of the current market cap. (I'm aware we're in the third phase.)

Diageo is trading on a 3.1 percent free cash flow yield at present, rising to 4 percent on forecasts for 2024. Their net debt is forecast to fall from about 4.8 times free cash flow in 2022 to about 3.8 times free cash flow in 2024, so they appear to be deleveraging somewhat as well (not in absolute terms but proportionally, by growing free cash flow). I'm not too concerned about it because Diageo has a very stable earnings base and should be able to service the debts, but we don't want them to be in a position where they are spending too high a proportion of their free cash flow on costs of borrowing. They have got a 12 percent cash return on invested capital for 2021, so that is a sign they are allocating their investment reasonably.

Best wishes


Mark.

Thanks for your input Mark, and for offering us all your take/thoughts on this item too.

I'm very happy to continue holding DGE, but have no plans of topping up my DGE holdings currently.

Ian.