Diageo (DGE), the struggling Guinness to Johnnie Walker drinks giant, has halved its dividend in a blow to equity income funds such as Nick Train’s Finsbury Growth & Income (FGT).
New chief executive Dave Lewis said the £39bn company’s board had taken the difficult decision to reduce the pay-out in order to strengthen its balance sheet and drive long-term growth. The announcement came in half-year results showing a $164m fall in free cash flow to $1.5bn with net sales forecast to decline 2-3% in the second half.
The dollar-based company declared an interim dividend of 20 cents per share, down from 40.5 cents, and said it would target paying 30-50% of earnings in future with a minimum annual dividend of 50 cents.
Lewis, a former Tesco boss, said Diageo’s first half was “mixed” with strong performances in Europe, Latin America and Africa offset by weakening demand in North America, where consumers are switching to cheaper alternatives, and continued weakness in Chinese white spirits.
“Only several weeks in I can already see significant opportunities for Diageo to act more decisively to enhance its competitiveness and broaden the portfolio offering leading to higher growth,” Lewis said as he promised to restructure the business around its customers.
Diageo shares fell 5.8% to £17.64, reversing some of this year’s rally following the arrival of Lewis who replaced Debra Crew on 1 January. They have steadily declined from £40.20 in April 2022.
Dan Coatsworth, head of markets at AJ Bell, said: “These are awful results and the repair job is massive.”
Shares in Finsbury Growth & Income, which held 10% of its assets in Diageo at 31 January, its sixth biggest holding, were broadly unchanged at 764p. While fund manager Nick Train is far from alone in backing Diageo, his long-standing position in the declining stock underlines the challenge he faces in turning around its performance.
The trust, which sits at the bottom of the UK Equity Income sector with a five year total return of 0.3%, is also in the eye of the storm over the impact of artificial intelligence on incumbent data and software providers, given over a third of the portfolio is in Sage, London Stock Exchange, Experian, Relx and Rightmove.
Our view
James Carthew at QuotedData said: “Diageo’s decision to cut its dividend in half is another blow for Nick Train’s Finsbury Growth and Income, where it was a 9.9% position at the end of January 2026. This puts a sizeable hole in its already relatively meagre (for a UK equity income trust) revenue line. Interestingly, Diageo’s share price has fallen so far that it has been picked up as a value stock (as a fairly small sub top-10 position, so far) by the team at Temple Bar (TMPL). Co-manager Ian Lance recently told TMPL’s investors that he was not unduly worried by the prospect of a dividend cut, which he thought might mark a turning point for the stock.”
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