UPDATE: Diageo (LSE:DGE) faces a dramatic 35% decline in stock value year-to-date, raising urgent questions about the viability of its 4.7% dividend yield. As the company enters its fourth consecutive year of negative returns, investors are left wondering if this is the right time to buy.
New reports confirm that Diageo’s financial struggles are intensifying. The global alcohol giant, known for brands like Guinness and Tanqueray, has experienced flat organic net sales in its recent fiscal update for FY26 Q1, revealing significant weakness in the Asia Pacific region, particularly in Chinese white spirits. With consumer trends shifting, especially in the key North American market, the outlook remains uncertain.
Analysts note that Diageo’s balance sheet is raising concerns. As of June, net debt reached a staggering $21.9 billion, with a leverage ratio of 3.4 times adjusted EBITDA. This figure suggests limited financial flexibility, prompting the company to target a reduction to 2.5 to 3 times by FY28. To facilitate this, Diageo is set to sell its stake in East African Breweries for $2.3 billion next year, which could stabilize its finances.
“For fiscal 26, we have updated organic sales and operating profit guidance due to adverse impacts from Chinese white spirits and a weaker US consumer environment than planned,” said Diageo in their November 2025 update.
As Sir Dave Lewis takes the helm as CEO in January, speculation arises that a dividend cut may be on the horizon. Many investors are wary, fearing that relying on a 4.7% yield could lead to disappointment. “I may be wrong, but buying this stock anticipating that yield feels risky,” commented one analyst.
However, some investors are considering the potential upside. With Diageo trading at just 13 times forward earnings as of late December 2025, the stock may be undervalued. The firm is also expected to report first-half earnings in February, which could provide further insights into its recovery potential.
Investors will be closely monitoring management’s statements during this earnings call. With the holiday season upon us, many are consuming Diageo brands like Baileys, potentially increasing interest in the stock as a festive investment.
As the situation develops, it remains crucial for potential investors to weigh the risks and rewards carefully. The market’s reaction to upcoming earnings could significantly influence Diageo’s path forward.
Stay tuned for updates as we follow Diageo’s financial performance and the leadership of its new CEO. This is a story that investors will want to keep an eye on, as the implications for their portfolios could be substantial.
