Investors Should Raise a Glass to Constellation Brands Stock for These 3 Reasons

Investors are likely confused about what to make of Constellation Brands (NYSE: STZ). The beverage company has suffered as Gen Z has shown less propensity to consume alcohol.

Despite that challenge, Warren Buffett's Berkshire Hathaway has bought shares in recent quarters even as Buffett prepares to retire. This move has not stopped the stock from falling further.

However, it is more likely that Berkshire started the party early with this stock instead of making a wrong decision. Three reasons illustrate why.

Image source: Getty Images.

1. Alcohol's enduring popularity

One reason investors probably should not lose faith in Constellation is that alcohol consumption is a constant. Constellation earned around 95% of its revenue from beer in the second quarter of fiscal 2026 (ended Aug. 31). Its holdings include popular brands such as Pacifico and the top-selling beer in the U.S., Modelo, which help the company stand out in the beer industry.

Also, as previously mentioned, alcohol consumption has fallen as a focus on health and competition with cannabis-related products may have cut into sales.

Nonetheless, archaeologists have found evidence of beer production going back thousands of years. That track record decreases the likelihood of beer consumption ending with the current generation, and could later pave the way for a recovery.

Moreover, product lines with never-ending demand have long appealed to Buffett. Berkshire owns or holds stakes in businesses such as bootmaker Justin Brands, furniture retailer NFM, and Coca-Cola for that reason. Now, Berkshire's shareholders can add Constellation to that list.

2. Constellation's dividend

Buffett, like many investors, has invested for dividend income, and Constellation offers a generous payout.

The company began paying a dividend in 2015. Also, it has increased its total annual payout every year since then, building a 10-year track record of rising dividends.

Currently, Constellation shareholders receive $4.08 per share in annual payouts, amounting to a dividend yield of over 3.1%. In comparison, the S&P 500 offers an average yield of just 1.1%, far below what Constellation shareholders receive.

Furthermore, Constellation can easily afford this payout. Over the trailing 12 months, the company generated about $1.85 billion in free cash flow. This is far above the $724 million it spent on dividends, indicating the company's payout is stable.

Given Buffett's history with lucrative dividend stocks such as Coca-Cola and Chevron, it is likely the rising yield and the annual payout hikes played a part in Berkshire's decision to purchase Constellation stock.

3. A favorable valuation

The aforementioned drop in the stock price has also led to a falling valuation. Its current P/E ratio is 19, far below the S&P 500 average of 31. Moreover, the forward P/E of 11 appears to confirm that this stock has become inexpensive.

Admittedly, the worries about lower consumption have likely led to the stock falling by 45% over the last year. Such conditions helped bring about the falling valuation.

However, even though the company's revenue is down by more than 10% in the first six months of fiscal 2026, the forward estimates offer some hope. Analysts believe revenue will fall 11% in this fiscal year but will stabilize in fiscal 2027. That could lead to a long-awaited sign of improvement in Constellation's business that could eventually take the stock higher.

Furthermore, the company has repurchased shares for years, with the share count dropping by 3% over the last year alone. With its outstanding share count at 175 million and dropping, the stock is in a position where rising demand could take the stock significantly higher.

Buying Constellation Brands stock

Admittedly, buying a stock in a competitive business with falling sales brings some risk. Still, a sober analysis of the stock shows some opportunity for investors willing to tolerate some risk.

Constellation controls some of the U.S.'s most prominent beer brands, making it increasingly likely that it will hold much of the existing business.

Moreover, investors can buy at a low valuation and earn a generous, growing dividend while they wait for a recovery. Those factors, along with the falling share count, could give investors one last opportunity to benefit from Buffett's wisdom before he retires.

Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Chevron. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.