Diageo (LSE: DGE) shares have put my Self-Invested Personal Pension (SIPP) through hell. Only two holdings have done worse, Aston Martin and Ocado Group, and I knew those were ultra-risky recovery punts when I bought them.
Diageo was meant to be the sensible one, a FTSE 100 defensive stalwart that had run into a little local difficulty that would soon resolve itself.
The spirits giant issued a profit warning in November 2023 after hard-up drinkers in Latin America and the Caribbean traded down to cheaper local brands. Instead of resolving itself the problem then spread, as the cost-of-living crisis hit sales across the US, Europe and China.
Stocking issues, the shock death of long-serving boss Ivan Menezes in June 2023 and US tariffs only added to the pain.
FTSE 100 defensive stock turned bad
Replacement CEO Debra Crew failed to arrest the slide and left in July, with sales still falling and investor patience wearing thin. There are long-term structural threats too, such as Gen Z drinking less and weight loss drugs such as Mounjaro also suppressing the appetite for alcohol. I’m not the only investor hurting today.
In Christmas 2021, Diageo shares peaked at £40.36. They’re now down to just £16.80, a drop of 58%. That would have reduced £10,000 to just £4,200. Reinvested dividends might lift that towards £5,000, but it still isn’t pretty. Diageo was always seen as one of the most rock solid UK blue-chips, remember.
The slump has continued in 2025, with the shares plunging a third since January. However, there’s a plus side for new investors.
For years, Diageo’s price-to-earnings (P/E) ratio hovered near 24 and the yield barely scraped 2%. Today, the P/E’s down to 13.7, while the dividend yield’s climbed to 4.73%. And there are signs of a recovery, with the Diageo share price up 5% in the last week.
Income and recovery potential
I’ve averaged down once on Diageo, only for the shares to fall further. The temptation to do it again has grown since former Tesco boss Sir Dave Lewis was appointed to take charge from January. His turnaround at Tesco restored credibility to a bruised brand and rewarded patient shareholders. I monitored his progress and was impressed. He was knighted for his efforts.
Still, this isn’t a quick fix. Issues such as slowing growth in core markets and shifting consumer habits won’t vanish with a few cost cuts. ‘Drastic Dave’, as he’s known, will need to do more than tighten belts to reignite momentum.
On the positive side, Diageo owns some of the strongest brands in global drinks, generates reliable cash flows, has kept paying and raising dividends through a grim period. If sales stabilise and modest growth returns, today’s price could look extremely attractive in hindsight.
I’ve learned the hard way that struggling shares can idle for years. Any recovery typically comes out of the blue. I want to be there when it happens. Or rather, if it happens. On The Motley Fool, we’re banned from trading any stock within two full trading days of writing about them. When those 48 hours have passed, I’m going to buy more Diageo shares.
