Image Source: PixabayAmbev SA (ABEV) is a Brazil-based brewer with roots in the 1880s. It is majority owned by Anheuser-Busch InBev, and has over 500 alcoholic and non-alcoholic brands under its umbrella.Some of the bigger alcoholic brand names include Skol, Bud Light, and Stella Artois, while the non-alcoholic offerings include Lipton Iced Tea, Canada Dry, and Seven Up. The brewer operates in many countries and reports under five operating segments: Brazilian Beer, Brazilian Non-Alcoholic Beverages, Central America, Latin America, and Canada.This enterprise is cheap by almost any yardstick. It is trading at a discount to its historic valuation and it is inexpensive versus brewing peers that include Anheuser-Busch InBev, Carlsberg, Compañía Cervecerías Unidas, Heineken, Kirin Holdings, The Boston Beer Company, and Molson Coors.Moreover, the stock is cheap compared to the consumer staples sector and the broader indexes. It also recently had a respectable dividend yield of 6.5%, which provides income-oriented investors with a good return as they wait for capital appreciation.Investors looking at value- or income-oriented plays should ask: Is this a value trap and is the dividend safe? In Ambev’s case, the enterprise has clean financials, consistent sales, and healthy operating metrics. Better yet, the margin of safety is high thanks to a strong balance sheet, stable share count, and consistent cash flows. These features mean it is unlikely to be a value trap.As for the dividend yield’s sustainability, the first observation to make is that the payout policy is to distribute at least 40% of the corporation’s annual adjusted net income. The distribution per share oscillates as a result, which means income-dependent investors need to be careful.Fears of a dramatic reduction or change in the 40% policy are likely overblown as earnings are consistent. The dividend payout ratio – while high – has been in the 80% to 90% range since 2014.All investments carry risk. In Ambev’s case, it faces challenges including exposure to the Brazilian real, litigation and tax changes in Brazil, hyperinflation in Argentina, lackluster results in Canada, and changing consumer preferences. These items appear manageable and or temporary, but they are still dangers. For our part, Ambev looks like it is on sale.More By This Author:Top Picks 2025: Altria Group
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