Better Take a Sober View of Beer Dividends

If you were thinking the self-quarantining was a boon to stay-at-home and work-from-home activities, you would be correct. While retailers and restaurants felt the pressure of the pandemic, grocery stores and at-home consumption of beer and related spirits grew. Per the April retail sales reports, food and beverage store retail sales rose 12.0% year-over-year, following a 29.3% climb in March. While that speaks to grocery store sales at a time when restaurant service was mostly limited to takeout and curbside pickup, it doesn't say much about beer sales. For that we can turn to data published by third party research firms NPD Group and Nielsen . According to the NPD Group, beer category sales, which include flavored malts and ciders, jumped nearly 18% in April and were up just over 13% for the three months ending in April. Digging into the data, beer sales were up high to single digits, but the category killer was the other category that includes flavored malts and ciders, which grew just shy of 44% year-over-year. Data from Nielsen revealed beer sales continued to move higher year-over-year in early May with the hard seltzer category continuing to gain consumer wallet share. Per data published by Nielsen, pandemic favorites appear to be Anheuser-Busch InBev brands Michelob Ultra, Pacifico and Bud Light Seltzer; Constellation's Corona Extra; MolsonCoors' Blue Moon; and Truly. Granted, those are for at-home beer category consumption, and there is little doubt beer sales for restaurant and bar consumption were down significantly during the April and May. And while the NPD and Nielsen data suggests favorable demand, it's only for a certain part of the market. According to estimates, roughly 20% of the North American market is on-premise -- meaning for consumption inside a bar, restaurant, tasting or tap room. The other 80% is off-premise better known as sales from grocery markets, liquor stores and package stores, if you're a New England resident. As Nielsen surmised, even though off-premise sales are up, it's not enough to offset the declines recorded for on-premise sales and consumption. Over the course of the pandemic, we've seen a number of companies across a variety of industries suspend their dividends to shareholders in a bid to preserve capital. Some have also slashed capital spending, instituted hiring freezes and mothballed share buy-back programs for the time being. And some with debt-laden balance sheets, like Hertz Global Holdings have gone done the Chapter 11 bankruptcy route. While we haven't seen something of that magnitude in the beer industry, recently in an 8-K filing with the Securities and Exchange Commission it was revealed that the board at Molson Coors ( determined that it will suspend its regular quarterly dividends on its Class A and Class B common shares otherwise payable in 2020. The company instituted several other measures, including trimming $200 million from its 2020 capital spending plan, cutting discretionary spending and slashed its marketing spend. If you know one thing about beer companies they tend to advertise the heck out of their products and sponsor a number of sporting events. While the company seeks to shore up its capital, it means shareholders will be out the $0.57 per share quarterly dividend, which equated to an eye-popping dividend yield just under 6%. Could investors have seen this coming? While it's hard to say for sure, there were clearly warnings signs, including that dividend yield and several liquidity ratios following the company's March quarter, such as a mid-teens multiples for total debt to EBITDA less capital expenditure and total debt to shareholders' equity at 0.71-times. With beer sales on upswing and the phased reopening of the country to allow for a rebound in on-premise beer sales, investors looking for a dividend play should consider shares of Anheuser-Busch InBev, which currently offers a yield near 4.5% and its total debt to EBITDA less CapEx is a far more palatable mid-single digit figure.

Better Take a Sober View of Beer Dividends

Molson Coors and Anheuser-Busch InBev offer sharp contrasts on how such beverage companies are holding up during the Covid-19-induced downturn.

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