Shares of Anheuser-Busch InBev (NYSE:BUD) declined 15% last month, according to data provided by S&P Global Market Intelligence. The fall continued a trend that began after the beer titan substantially reduced its cash dividend payout.
Anheuser-Busch is struggling with stagnating demand for beer in the U.S. and many other areas of the world.
And multiple emerging-market currencies have fallen in value in relation to the U.S. dollar in recent months. With much of its revenue derived from international markets, these negative foreign exchange movements have taken a toll on AB InBev's profits.
The situation has also made it more difficult for the company to service its nearly $120 billion debt load, which is largely denominated in dollars. So AB InBev decided to cut its dividend in half in late October, to free up cash to pay down this debt. That led many income-focused investors to dump their shares, and the dividend reduction continued to weigh on AB InBev's share price in December.
AB InBev's dividend cut came as a shock to many investors. The company had long said that it planned to maintain and even grow its dividend over time, while also reducing its financial leverage. But due to continued weakness in beer volumes and a difficult currency situation, that's no longer the case. Instead, management decided to slash the dividend to accelerate its debt repayment plan.
Yet while it's understandable that dividend-focused investors would be frustrated by this move, the cut is likely to be the correct decision. AB InBev's debt ballooned to massive levels after its blockbuster acquisition of fellow beer giant SABMiller in 2016, and the cost to service this debt was set to become even more onerous as interest rates rise. So the company is making the prudent decision to reduce its debt burden now -- before it becomes a bigger problem.
Moreover, even after a 7.5% rise in January, AB InBev's stock is still within 10% of its 52-week low following its declines in late 2018. That could make the beer king's discounted shares intriguing to some value investors going forward.
Check out the latest Anheuser-Busch InBev earnings call transcript.