I’m thinking of buying more Diageo shares following strong full-year results!

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2023 has been a rough ride so far for the Diageo (LSE:DGE) share price. Though it’s picked up more recently, the FTSE 100 drinks giant remains 5% cheaper than it was at the start of the year.

Investor concerns about slowing US sales have driven the Smirnoff and Captain Morgan brands maker lower. So has tension over the direction the company steers under new chief executive Debra Crew.

But as someone with an appetite for buying beaten-down bargains, I used this weakness as an opportunity to increase my existing stake. I buy shares with a long term view in mind and I believe this high-quality FTSE stock will deliver mighty returns in the coming decades.

Impressive full-year results have underlined the wisdom of adding more Diageo shares to my portfolio.

Impressive sales

On Tuesday, the firm announced a solid 6.5% rise in organic net sales during the 12 months to June. Not only did this beat forecasts, but it came despite a 0.8% decline in organic volumes.

As a consequence, pre-tax profit leapt 8% year on year to £4.7bn, giving Diageo the power to keep its long-running progressive dividend policy going. The full-year dividend was hiked 5% to 80p per share.

Diageo’s results tell the story of a company which benefits from considerable pricing power. Not only does the company’s market-leading labels remain in high demand even when broader consumer spending power comes under pressure, but the firm can get away with lifting prices, even during tough times, to keep growing sales and profits.

Those better full-year sales reflected a 7.3% improvement in price/mix during the period. Though price hikes were only part of the story. Diageo’s drive to sell more products at the premium end of the market is also pushing revenues skywards.

During the last year, premium-plus brands made up almost two-thirds of reported net sales of £17.1bn.

Diageo shares: a top buy

Intense competition is a constant threat to Diageo’s earnings. Yet the company has an exceptional track record of growth despite this. Tuesday’s full-year results illustrate that its annual goal of growing organic net sales by 5-7% consistently is more than achievable.

The strength of its labels, combined with its expansion in the premium and non-alcoholic ends of the market, should allow it to hit this target. So should the firm’s vast exposure to Asian, African and Latin American markets, where soaring wealth levels are driving alcohol demand.

Diageo shares don’t come cheap, and its share price trades on a forward price-to-earnings (P/E) ratio of 19.8 times. This is some distance above the average of around 14 times for FTSE 100 stocks.

But as with any purchase we make, it often pays to pay a bit more for quality. And those full-year results underline the wisdom of owning this particular premium stock. I’ll be looking to increase my shares in the Guinness maker when I next have cash to invest.

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