Updated 3/6/25
Constellation Brands (NYSE: STZ) is a heavyweight in the alcohol industry, boasting a strong portfolio that includes household names like Corona, Modelo, and Robert Mondavi wines. The company has spent decades cementing itself as a leader in the premium beverage space, riding trends in craft beer, high-end wines, and even cannabis investments.
But when it comes to dividends, STZ is a bit of a mixed bag. It offers a solid yield and a history of increases, but there are some concerns about how sustainable those payouts are in the long run. The company has a high payout ratio, significant debt, and a stock that has recently taken a hit. For dividend investors, the key question is whether this is a temporary dip or a sign of deeper financial strain.
Let’s break it down.
Key Dividend Metrics
📌 Dividend Yield: 2.26% (above its five-year average)
💵 Annual Dividend: $4.04 per share
📈 Five-Year Dividend Growth Rate: 6.8%
💰 Payout Ratio: 104.53% (higher than ideal)
📆 Next Dividend Payment: February 21, 2025
📉 Ex-Dividend Date: February 7, 2025
Dividend Overview
Constellation Brands has made a name for itself as a reliable dividend payer, but it isn’t exactly known for high yields. Right now, the 2.26% yield is better than its historical average, which could make it more attractive to income-focused investors.
However, the real question is sustainability. The company’s payout ratio has shot up past 100%, meaning it’s currently paying out more in dividends than it’s earning. That’s not something a company can keep up forever. It can use cash flow to cover the gap for a while, but at some point, earnings will need to catch up, or management may have to rethink its dividend strategy.
Dividend Growth and Safety
Over the past five years, STZ has delivered steady dividend increases, growing payouts at an annualized rate of about 6.8%. That’s a solid rate, comfortably outpacing inflation.
But dividend safety is another story. A payout ratio north of 100% raises some red flags. Companies that consistently pay out more than they earn often end up making tough decisions—either slowing dividend growth, pausing increases, or, in extreme cases, cutting the payout altogether.
One positive is that STZ generates strong free cash flow, which gives it some breathing room. However, the company’s high debt levels complicate things. With interest rates rising, carrying that much debt could make it harder to maintain the current dividend policy over the long term.
Chart Analysis
Overall Trend
The chart for Constellation Brands (STZ) tells a story of a stock that has been under significant pressure for months. The long-term trend has been decisively bearish, with a steady decline that accelerated in late 2024. The sharp drop in price around December suggests a major shift in investor sentiment, possibly tied to earnings, macroeconomic conditions, or sector-specific concerns.
Moving Averages
The 50-day moving average (orange line) has been trending downward for a while, showing that short-term momentum is firmly bearish. More concerning is that the 200-day moving average (blue line) has also started sloping down, reinforcing the longer-term downtrend. The death cross, where the 50-day moving average crosses below the 200-day, happened months ago and has yet to show signs of reversing.
Right now, the price is still well below both moving averages, meaning the stock has a lot of ground to cover before regaining any significant bullish momentum. Even this recent bounce has yet to reclaim the 50-day moving average, which could act as a resistance level in the near term.
Volume Activity
Volume spikes have been noticeable at key moments. The large red bars in December and January indicate heavy selling pressure, likely driven by institutional activity. More recently, the volume has been steady but not overly aggressive, suggesting that buyers are stepping in, but not with overwhelming conviction.
If this rebound continues, volume will need to pick up meaningfully to confirm a true shift in momentum. Without strong buying pressure, any rally could be short-lived and susceptible to another pullback.
RSI and Momentum
The relative strength index (RSI) at the bottom of the chart paints an interesting picture. A few weeks ago, RSI was sitting at extremely oversold levels, which helped fuel the recent bounce. Now, it’s recovering but still in the lower half of the range. That means there’s still some room to run before hitting overbought conditions, but momentum remains weak.
For a true trend reversal, the RSI would need to push decisively higher and hold above the midline (50). Right now, it’s signaling a relief rally rather than a confirmed change in direction.
Recent Price Action
The last five candles show a slow but steady attempt at recovery. There have been higher lows, which is a positive sign, but the price hasn’t yet broken through key resistance levels. The latest close at 178.95 shows some strength, but with overhead moving averages still sloping down, the stock will need more momentum to make a convincing breakout.
The wicks on recent candles indicate some back-and-forth action, suggesting that sellers are still active at higher levels. This could mean that the stock needs a period of consolidation before making a sustained move in either direction.
Analyst Ratings
Upgrades
📈 RBC Capital: On March 7, 2025, RBC Capital reiterated its positive outlook on Constellation Brands, maintaining an “Outperform” rating. However, they adjusted their price target slightly downward from $293 to $289. This minor reduction suggests that while they still see growth potential, they are accounting for recent market dynamics.
Downgrades
📉 Bernstein: On March 5, 2025, Bernstein analysts lowered their price target for Constellation Brands from $300 to $230, while still maintaining an “Outperform” rating. The adjustment was primarily due to new 25% tariffs on Mexican imports, which could significantly impact the company’s earnings. Approximately 84% of Constellation’s 2025 net sales are projected to come from its premium Mexican beer brands, making it vulnerable to higher costs.
⚠️ Morgan Stanley: On February 27, 2025, Morgan Stanley downgraded Constellation Brands from “Overweight” to “Equal-weight” and reduced the price target from $220 to $202. The downgrade reflects concerns over the company’s beer segment growth prospects. While Morgan Stanley still sees value in the stock, they noted that growth may slow, even though the current valuation remains reasonable.
Consensus Price Target
📊 The current consensus price target for Constellation Brands sits at approximately $234.61. This represents an average of various analysts’ projections, indicating a potential upside from the current stock price. However, price targets remain widely spread, with some analysts expecting a stronger recovery while others anticipate prolonged challenges.
These recent analyst revisions highlight both opportunities and risks for Constellation Brands. With external factors like tariffs and internal concerns around beer segment growth, investor sentiment remains mixed. Keeping an eye on earnings updates and future market conditions will be key in determining where the stock heads next.
Earnings Report Summary
Constellation Brands just released its latest earnings report, and it’s a bit of a mixed bag. The company, known for popular brands like Corona and Modelo, saw solid profits but also ran into some headwinds, particularly in its wine and spirits division.
Financial Performance
Net income came in at $615.9 million, or $3.39 per share, an improvement from last year’s $509.1 million. On an adjusted basis, earnings landed at $3.25 per share, which was just shy of expectations. Sales for the quarter totaled $2.64 billion, which was slightly lower than the previous year.
How the Business Segments Performed
The beer division was a bright spot, posting a 3 percent increase in sales to $2.03 billion. Even though it missed some analyst forecasts, growth in this segment continues to drive the company forward. On the other hand, the wine and spirits segment struggled, with revenue falling 14 percent to $431 million, a steeper drop than many had anticipated.
What’s Next for the Company
CEO Bill Newlands struck a cautious tone about the months ahead, pointing to uncertainties in consumer spending. As a result, the company trimmed its outlook for net sales and operating income growth, but on the bright side, it raised projections for operating cash flow to a range of $2.9 billion to $3.1 billion. Free cash flow is now expected to be between $1.6 billion and $1.8 billion, which is a slight improvement from prior estimates.
Constellation is also continuing its push into premium products. As part of that strategy, it recently announced plans to sell off SVEDKA, signaling its intent to focus more on high-end offerings.
How the Market Reacted
Investors weren’t too thrilled with the report, and the stock dropped about 3.6 percent in premarket trading. There’s some concern over slowing consumer spending and the impact of new tariffs on Mexican imports, which could affect Constellation’s beer business since many of its top brands are brewed in Mexico.
All in all, the company’s beer segment is still a strong performer, but the wine and spirits division is proving to be a drag. The focus on premiumization is a smart move, but external pressures like tariffs and consumer trends could make the road ahead a bit bumpy.
Financial Health and Stability
Debt and Liquidity
🔸 Total Debt: $12.12 billion
🔸 Debt-to-Equity Ratio: 150.15%
🔸 Cash on Hand: $73.7 million
Constellation Brands is no stranger to carrying debt, but right now, its debt-to-equity ratio is sitting at a hefty 150%. That’s a big number, and it suggests the company is heavily reliant on borrowed money. While this isn’t necessarily a dealbreaker—many large companies operate with significant leverage—it does add some risk, especially in an environment where borrowing costs are rising.
The company’s current ratio of 1.10 means it has just enough assets to cover short-term liabilities, but it doesn’t leave much of a cushion. If economic conditions worsen or if cash flow takes a hit, STZ could find itself in a tight spot.
Profitability and Cash Flow
✅ Operating Cash Flow: $2.99 billion
✅ EBITDA: $3.91 billion
✅ Profit Margin: 6.74%
Despite its debt, Constellation Brands is still a cash-generating machine. With nearly $3 billion in operating cash flow, it has the means to keep paying dividends, managing debt, and investing in growth. But the question remains—how long can that continue if debt levels stay this high and revenue growth slows?
Valuation and Stock Performance
STZ has had a rough ride over the past year, with the stock down nearly 30% from its 52-week high of $274.87. At its current price of $187.73, the stock is trading well below its historical valuation levels.
Valuation Metrics
📊 Forward P/E: 12.15 (a sign of a cheaper valuation)
📊 EV/EBITDA: 27.55 (higher than industry peers)
📊 Price/Sales: 3.21 (down from last year’s 4.8)
At a forward P/E of 12.15, STZ is looking more reasonably priced than it has in recent years. The lower valuation could mean there’s some upside potential if earnings hold up. On the other hand, the stock’s beta of 0.89 suggests it moves with less volatility than the broader market, which could make it a steadier option for investors looking for stability.
Risks and Considerations
Debt Load
One of the biggest concerns for STZ is its balance sheet. Carrying over $12 billion in debt means that a significant portion of earnings is already spoken for. If interest rates continue to rise or if refinancing becomes more expensive, the company may have to cut back on shareholder returns.
Slowing Growth
Revenue has flattened out, with a slight year-over-year decline of 0.3%. If sales don’t start picking back up, it will be tough for the company to keep raising dividends at the pace investors have come to expect.
High Payout Ratio
The dividend payout ratio being above 100% is not sustainable over the long term. At some point, either earnings need to grow or dividend increases will have to slow down.
Consumer Trends
The alcohol industry is evolving, with younger generations drinking less beer and opting for spirits or non-alcoholic alternatives. While Constellation Brands has made some moves to diversify, it will need to stay ahead of shifting consumer preferences to keep revenue growth steady.
Final Thoughts
Constellation Brands is a solid company with strong brands and a history of delivering value to shareholders. But for dividend investors, there are a few concerns worth keeping in mind.
The high payout ratio, coupled with significant debt, makes dividend growth uncertain over the long term. On the bright side, the company’s cash flow generation is strong, and it has a track record of rewarding investors. The recent stock pullback also makes the valuation look more attractive than it has in years.
For investors focused on dividends, STZ presents both opportunities and risks. It’s a company with solid fundamentals, but the balance sheet needs careful attention. Watching how management handles debt and whether earnings continue to grow will be key in determining whether this remains a strong dividend stock in the future.
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