Although a lot of attention is being paid to Warren Buffett’s massive $334 billion cash reserve and that he has been a net seller of stocks, it doesn’t mean he hasn’t been buying any.
In his fourth-quarter 13F-HR filing with the Securities & Exchange Commission (a form for Wall Street’s wealthiest investors to show which stocks they bought and sold), Buffett revealed that although he was again selling down or emptying his portfolio of various positions he held, he bought only one stock: Constellation Brands (NYSE:STZ).
It was a sizable position too, valued at over $1 billion. That means that while it could have been made by one of his investing lieutenants, Ted Weschler and Todd Combs, it was likely by Buffett himself because analysts believe that stock purchases in Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) of less than $1 billion are made by them while investments over that threshold are made by the Oracle of Omaha himself.
Regardless of who made the decision, Constellation Brands recently announced it was increasing its dividend payment, a modest rise from $1.01 per share to $1.02 per share, or 1% increase, and that could be a problem.
Crying in its beer
Constellation Brands is the world’s largest wine producer and the largest beer importer in the U.S. However, because of President Trump’s trade policies, particularly the 25% tariffs imposed on Mexico, Constellation’s beer portfolio of Corona and Modelo could be in trouble.
Although tariffs have been temporarily paused for 90 days, they remain a cloud hanging over Constellation’s head until the trade issues are resolved. Until then, the brewer and vintner will continue to struggle.
Although it posted 2% sales growth for fiscal 2025, with efficiencies in its beer segment driving adjusted earnings per share 11% higher, Constellation said it only expects beer sales to rise by low- to mid-single-digit rates for the next three years compared to its prior forecast of 6% to 8% growth.
Where Corona and Modelo had been the best-selling beer in the U.S. since Anheuser-Busch InBev‘s (NYSE:BUD) Bud Light controversy, and were essentially the only beers experiencing growth in a declining category, it is now experiencing demand softness, especially by Hispanic drinkers, which represent 50% of Modelo drinkers.
Tightening its belt
The penny-per-share increase in the dividend hints at larger problems. For investors, the 1% rise is below the rate of inflation (currently 2.4%), meaning shareholders are receiving less income than they were previously.
Constellation Brands carries almost $9.3 billion in long-term debt, but has just $68 million in cash and equivalents on its balance sheet. While it does produce copious amounts of free cash flow that more than cover the distribution, that could be hampered in future periods.
It is selling off it low-priced wine business while the premium-priced ones it retains could be affected by tariffs. Some 20% of the wine and spirits sales comes from Canada and Constellation is forecasting as much as a 20% decline in segment sales in 2026. They were down 7% last year.
While Constellation Brands has grown its payout at a 13% compound annual growth rate since initiating it in 2015, the dramatic scaling back of the growth indicates tough times ahead. It might not be forced to cut the dividend any time soon, but this is not the dividend growth stock of even last year.
Key takeaways
Buffett doesn’t buy stocks because they pay dividends, though he definitely loves when they do. He collects billions of dollars a year in dividend payments from stocks that he owns, but with him selling off notable portions of his portfolio, the checks have gotten smaller.
He also refuses to pay dividends on Berkshire Hathaway, believing he can allocate the money better than shareholders.
Now that Constellation Brands has only raised its own dividend by 1%, after a decade of double-digit increases, investors might want to use caution about buying STZ stock, even if it is Buffett’s favorite alcoholic beverage company.
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