How Has Constellation Brands (STZ) Stock Done For Investors?

Constellation Brands (NYSE: STZ) has a long record of paying dividends and delivering returns to shareholders. However, the stock has moved in the opposite direction from the S&P 500 index over the past two years. Over the last 12 months, the stock has declined by 41%, compared to a 12% gain for the S&P 500.

Sales of the company's top beer brands, such as Corona and Modelo, have suffered due to economic pressure on its core customers. Still, the near-term headwinds could provide investors with an excellent opportunity to buy shares at attractive valuations.

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What happened to Constellation Brands

Constellation has a strong portfolio of wine, spirits, and beer brands, with the latter accounting for the majority of its annual revenue. It holds the distribution rights to some of the most popular imported brands in the U.S., including Corona, Modelo Especial, and Pacifico. Lower sales of these imports contributed to a 15% year-over-year decline in the company's total revenue last quarter.

A key factor in the decline has been a weak consumer spending environment, in which 80% of surveyed consumers expressed concern about their personal finances. However, management continues to invest in long-term expansion because it believes the recent sales declines are temporary. Nothing has changed the value of its brands, as Pacifico, Corona, and Modelo have retained top market share positions in the beer category.

One of the ways the company is investing to benefit shareholders is by selling off lower-end wine and spirits brands to focus on more profitable opportunities in premium wines and other segments. It recently sold off its Svedka vodka brand and related assets for $409 million. The proceeds from asset sales are funding share buybacks, debt repayments, and investments in its beer brands, which are expected to drive long-term growth in earnings per share.

Focusing on business fundamentals can lead to big payoffs

When the stocks of profitable companies decline, it can create a great buying opportunity ahead of a recovery in the underlying business. Obviously, investors who bought shares last year are underwater now, but the stock could rebound over the next few years if revenue stabilizes and begins to grow again. The stock was recently trading at just 13.7 times free cash flow.

The business generated more than $1.8 billion in free cash flow over the last four quarters, indicating Constellation remains capable of generating healthy profits even when sales are down. This cash flow is more than adequate to fund dividend payments. Over the last year, it paid 39% of its free cash flow in dividends.

With a stock offering an above-average forward dividend yield of 2.87%, Constellation Brands is a solid value stock to consider buying heading into 2026.

John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.