Tariff turnaround: a potential game-changer for 1 of the FTSE 100’s top dividend stocks

Dividend investors looking for stocks to buy have had a lot to think about with Diageo (LSE:DGE) recently. But the equation might just have changed in a big way over the weekend.

One of the many things the FTSE 100 company has been battling with recently has been tariffs on US imports. But the Supreme Court just struck these down, so is the stock set to bounce back?

What just happened?

The Supreme Court has ruled that the US President’s decision to invoke tariffs on various countries without the approval of Congress was unlawful. And that’s hugely significant for several reasons.

Tariff uncertainty has been one of the big themes moving the stock market as a whole since the last election. And Diageo has been one of the companies that has been worst-affected.

Sir Dave Lewis might have a reputation for being bold. But even the most dynamic CEO can’t do anything about the fact that it’s impossible to produce Scotch whisky in the USA. 

As a result, Diageo has found itself impacted by tariffs. And this, combined with weak consumer spending outside those with the highest incomes has been a big problem for the firm. 

What happens next?

So what happens next? The President has announced plans to impose new tariffs, but there are reports emerging that refunds for companies that have been affected might be on the cards. 

Acting as its own Importer of Record, Diageo could be eligible to benefit if firms that have paid tariffs can claim their money back. That could be a huge boost, but it’s not entirely straightforward.

Across the board – not just with Diageo – there are suggestions that US consumers have ultimately picked up most of the costs. So whether or not businesses are due compensation is unclear.

If that’s right, though, tariffs unwinding should cause consumer spending to strengthen. And that’s where companies – including the FTSE 100 firm – stand to benefit in an important way.

Is Diageo in the clear?

Tariffs haven’t been Diageo’s only issue recently. Another concern has been the emergence of GLP-1 drugs, which have been weighing on demand and remain a serious risk. 

One of the limiting factors with GLP-1s, though, is cost. And that looks set to remain the case with US regulators clamping down on cheaper versions produced by the likes of Hims and Hers.

Whatever anyone thinks about the ethics, it means prices are likely to stay high. That’s good for Eli Lilly, but not for anyone who can’t afford $300 a month.

It’s also good for Diageo. Outside those covered by Medicare and Medicaid, higher prices are likely to limit uptake and the elimination of cheap alternatives should support this.

A buying opportunity?

My sense for some time has been that Diageo’s shares look like good value. But investors waiting for signs of a recovery haven’t had much to go on over the last couple of years.

That, however, looks like it might be changing. Things are starting to look much more positive for the company and the share price is beginning to bounce back from its recent lows.

At today’s prices, there’s still a 4.5% dividend yield on offer. So I think encouraging signs from the underlying business mean it might be a good time for investors to consider buying.

The post Tariff turnaround: a potential game-changer for 1 of the FTSE 100’s top dividend stocks appeared first on The Motley Fool UK.

More reading

• £5k invested in Diageo shares 3 months ago is currently worth…
• 5 reasons why Diageo shares could leap 51% to £27.25!
• £20k in savings? Buying cheap shares in an ISA could help you retire early
• After falling up to 45% in 2025, are these now the best stocks to buy in 2026?
• Down 50% with a 4.5% yield and P/E of 14 – are Diageo shares a screaming Buy or a lethal value trap?

Stephen Wright has positions in Diageo Plc. The Motley Fool UK has recommended Diageo Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

See author's posts