Now that Craft Brewing Alliance (BREW) has been acquired by Anheuser-Busch InBev (BUD) as noted in our November 12, 2019 posting, we turn our attention to Anheuser-Busch InBev.
There is no better place to start analysis on BUD than with the dividend. However, the history of Anheuser-Busch InBev (BUD) has changed dramatically since 2008. Prior to November 2008, BUD was the leading domestic (U.S.) producer of beer. However, the acquisition of Anheuser-Busch in November 2008 by InBev has created the world’s largest brewing company.
The best way to do a dividend analysis on BUD is to take the history of data after November 2008 to the present (approximately 10 years) and compare it to the last 10 years of data before it became a global giant (1997-2007). The reason for this type of comparison is to contrast the largest producer in the U.S. against the largest producer globally.
The data that we have selected is from Value Line Investment Survey covering the period of 1982 to 2019. To compare different periods in BUD’s dividend policy, we have used year-over-year data of the percentage change in the annual dividend.
In addition, we have added the payout ratio for BUD. In the case of the period after the InBev acquisition (2011-2018) we have giving the dividend payout ratio for each year while the period prior to the InBev acquisition (2000-2007) we have provided only the highest payout ratio.
In the period after the acquisition of Anheuser-Busch by InBev from 2011 to 2018, the year-over-year increase in the dividend has been in a declining trend topping out at 145% in 2013 at a payout ratio of 62.99% to a decline of –74.75% in 2018 with a payout ratio of 152.07%.
This is contrasted with the period from 2000 to 2007 when the payout ratio never exceeded 47.17% and never saw a year of declining dividend payments.
There are two important features about the charting of the fundamental data above. First, the declining trend into negative territory suggests that whatever the current dividend is, it isn’t sustainable, even after the current decline of –74.75%. Second, a declining trend dominated by payout ratios exceeding 100% compounds the prospects of an adverse dividend policy (barring accounting creativity).
The situation that InBev finds itself is common of companies that are at or near monopoly in their respective industry. This is a point where InBev is suffering the “deadweight loss” of being a behemoth. This should result in a considerable reduction in the dividend and/or the spin-off of less profitable units.
In future postings, we will examine the prospects of Anheuser-Busch InBev based on the year-over-year dividend rate from 1982 to 2007. This is the most sustainable scenario that an investor could expect from a company in this industry at half the current size.
