Should I buy Diageo shares at £34 and hold them forever?

Diageo (LSE: DGE) share price in Euros over the past year. That’s pretty disappointing considering that FTSE 100 roared above 8,000 points to reach a new all-time high a few weeks ago.

The index has since pulled back, but remains 3% higher than this time last year. But Diageo’s share price remains weak.

So, is this a good opportunity for me to buy stocks today?

Shares of the eternal type

I think Diageo is a good investment to hold in this economic situation and forever.

Fund manager Nick Train

One in 10 pints served in pubs or bars in London by 2022 will be one pint Guinness. This is a new record for Diageo’s second largest brand. And last month, the company raised prices by 12% on various draft beers, including Guinness.

This tells us a few things. One, Diageo has many unique brands, such as Guinness, which is growing in popularity. And two, companies have pricing power. It can raise prices without hurting sales – as and when necessary – to maintain profit margins.

The spirits giant has more than 200 brands sold in more than 180 countries. I would struggle to walk five yards down the drinks aisle of a supermarket without encountering the Diageo brand. Johnny Walker, Smirnoff, Gordon’s, Tanqueray, Captain Morgan, Baileys. The list goes on.

And recently acquired Don Papasuper premium dark rum from the Philippines.

This combination of instantly recognizable brand and pricing power makes Diageo a buy-and-hold-forever stock for me.

A bright future

The company reported interim results in January, covering the six months to December 31. Net sales rose 18% year-on-year to £9.4bn. This was driven by healthy organic net sales growth (+9.4%) and the favorable impact of order revenue in the strong US dollar.

There was growth across all areas, with overall earnings per share (EPS) rising 15.2% to 98.6p. This metric should be higher as management continues to sanction share buybacks. Fewer shares mean higher EPS figures.

But the only concern is that Diageo’s sales in North America fell by just 3%, which was less than analysts had anticipated. This is the company’s biggest market, so there is a risk that overall sales could be underestimated if US consumers continue to tighten their belts.

However, the company is positioned for long-term wins. Rising global wealth, particularly in China and the wider Asia-Pacific region, should continue to boost sales.

In addition, almost 60% of the revenue now comes from premium or super premium brands. Management reckons this global ‘premiumisation’ trend is still in its infancy – an exciting prospect for shareholders.

Buying opportunity

The stock currently has a price-to-earnings (P/E) ratio expected to be close to 20. I don’t think it’s a ridiculous price for a high-caliber company with years of profitable growth.

In addition, Diageo has increased its dividend for over 20 years now. I only see shareholder payouts increasing from here, though that is not guaranteed. The dividend yield on the stock is currently 2.3%.

When I look at my own portfolio, there are not many businesses that I am more confident about in the long term than Diageo. It remains one of the largest holdings. And if I haven’t, I will make it today.