Is it time for a tipple of the Diageo share price?

Over the last year, the Diageo (LSE:DGE) share price in US Dollars Following the release of interim results in January, the stock fell 5%.

Some financial analysts were apparently disappointed with the 3% US sales growth. Considering that over the past five years, the average annual sales growth for Diageo has only been around 5%, I do not share my disappointment. For a long-term investor like myself, earnings trends over the years are more important than short-term earnings disruptions.

Warren Buffett’s shareholder letter to BerkshireShareholders were only released at the end of February as well. This is a very short letter. Warren in his old age must think that less is more. I want to keep it brief but very focused on a topic close to my heart. He focused on the “secret sauce” and highlighted two stock holdings.

He ended up buying it Coca Cola in 1994. Berkshire’s American Express holding essentially ended in 1995. Both investments became 10 baggers. In some years, Coca-Cola’s dividend income could be higher than the total initial cost of Coca-Cola’s position for Berkshire Hathaway. That certainly sounds like the achievement of the Holy Grail of investing.

Could UK stocks be the UK version of Warren Buffett’s Coke and Amex holdings?

Here, I want to return to Diageo.

Raise your glasses

My ISA holdings in Diageo have more than doubled since inception. One of the mistakes investors make is not buying enough shares of good stocks. I’m afraid I’ve made that mistake. With the tax year coming to an end in the UK, I want to add Diageo to my ISA and SIPP account as Diageo could be the UK version of Warren Buffett’s Coke and Amex.

Luxury stocks have fared better this year as China eases Covid restrictions. Diageo can also be seen as a luxury stock. The Chinese can be expected to go out again in 2023 and mix cognac and Scotch whiskey with Coca-Cola again when they do. So Diageo’s sales in Asia may look better this year.

Additionally, Diageo has only started buying back its own shares since 2018. Fewer shares of Diageo’s remaining stock could be good for long-term investors. Nick Train made a similar point in his January Factsheet Finsbury Growth & Income Trust.

On the other hand, UK corporate tax rates are expected to rise in April. That will shrink the portion of Diageo’s earnings pie available to shareholders in the coming years.

If Diageo can continue to grow profits by 5% per year and return to 30 times price-to-earnings in 10 years’ time, there is a chance that a shareholder like me could make around 22% per year holding the stock. Let’s hope Mr Hunt’s UK corporate tax attack doesn’t upset the forecast. I think it’s time to tipple the share price of Diageo, and I plan to increase my holding. Fingers crossed.