Should I buy Diageo shares now that it’s returning capital to shareholders?

first_imgShould I buy Diageo shares now that it’s returning capital to shareholders? See all posts by Nadia Yaqub Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Image source: Getty Images. Simply click below to discover how you can take advantage of this. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. “This Stock Could Be Like Buying Amazon in 1997” Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo. 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Enter Your Email Address Nadia Yaqub | Thursday, 13th May, 2021 | More on: DGE I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. I selected  Diageo (LSE: DGE) shares as my top pick for May. And I’m pleased to say that a company announcement yesterday was very encouraging. I’ll cover this statement in detail shortly.But it’s worth noting that the stock has been rising recently. The hospitality sector has now reopened so I’d expect the firm’s sales to recover. I think Diageo shares could rise further and I’d buy the stock in my portfolio.5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Trading updateThe beverage company released a brief trading update this week, which was positive. It highlighted that “it expects organic operating profit growth to be at least 14% in fiscal 21, slightly ahead of organic net sales growth”.Diageo has so far seen good sales recovery across all regions. In particular, North America, the largest market, where “performance has remained particularly strong”. It also went on to mention that despite the impact of Covid-19, it’s seeing a “continued recovery” in Africa, Asia Pacific, Latin America and the Caribbean.While the pandemic is not over yet, I think this is encouraging news. So far, things seem to be heading in the right direction. As the hospitality sector starts to reopen in different economies, more people are likely to drink alcohol and this should push Diageo shares higher.Return of its capital programmeI think the key item from the announcement was that the company has decided to restart its return of capital programme (ROC).On 25 July 2019, the board agreed to return up to £4.5bn to shareholders in the three-year period from July 2019 to June 2022. This was going to be done through either share buybacks or special dividends, depending on market conditions.Diageo had repurchased £1.25bn of its shares by the end of January 2020. This was the first phase of the ROC. But that was before the pandemic. Unfortunately the world was struck by the coronavirus crisis and the company had to go into survival mode.I think it’s fantastic news that the FTSE 100 firm has decided to initiate the second phase of ROC of up to £1bn, which will be completed by the end of the 2022 fiscal year. Diageo has entered into an agreement with UBS to enable it to start share buybacks from 12 May 2021 up to the value of £0.5bn. This is expected to end by 12 November 2021.The company has also stated that “further execution phases of the ROC programme will be announced in due course”. I think this news sounds promising for Diageo shares.The fact that the firm can do this now means that it has robust cash generation. It also highlights that the board is shareholder-friendly. This is a quality I look out for when analysing a company.RisksThings may look rosy, but any Covid-19 setbacks may hinder Diageo shares. Further lockdowns could mean the hospitality sector shuts down again. If this happens, it’s likely to have an impact on the company’s revenue and profitability.And there is no guarantee when it comes to ROC. Even though the board has decided to restart this, if market conditions deteriorate it could be halted.But I’m optimistic on the outlook for Diageo shares so I’d buy the stock. I think the worst is behind the company and a strong sales recovery is in sight.last_img