Looking for Yield, But Worried About Inflation? Buy This Instead of Bonds
Investing in a moderate grower at a discount can be safer than eroding your purchasing power in fixed income.
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If you're a long-term investor looking for a yield that won't be eroded by inflation, take a closer look at Constellation Brands STZ.
Constellation Brands is the largest provider of alcoholic beverages across the beer, wine, and spirits categories in the U.S., generating 84% of revenue from Mexican beer. Their flagship beer brands such as Modelo, Corona, and Pacifico dominate the U.S. market, and their premium wine and spirits, including High West Whiskey and Casa Noble Tequila, add even more strength.
Strong Cash Flow With Brand Equity
STZ currently offers a free cash flow to equity yield of 6.81%, which is significantly higher than most bond yields and even stronger than many large consumer peers like Brown-Forman BF.B and Diageo DEO. Over the past five years, STZ's free cash flow to equity has averaged about $2.093 billion annually — a clear testament to operational resilience.
A Moderate Grower at a Discount
Investing in a moderate grower at a discount can be safer than eroding your purchasing power in bonds.
STZ's return on invested capital is an impressive 17.7% recently, well above their cost of capital, though their five-year average ROIC has been closer to 6%. Return on equity has reached around 18% in recent years but averages about 6.6% over the past five years, reflecting improvements and past restructuring impacts.
With a retention ratio around 73%, this supports a more moderate long-term sustainable growth rate closer to 5% — still attractive when paired with their strong cash flow and brand strength.
Why the Stock Is Down...
Long-term value opportunities arise when the fundamentals look messy.
Bears highlight recent volume declines in core beer segments, particularly among Hispanic consumers facing economic pressures. There are also margin pressures from tariffs on Mexican imports and aluminum cans. Additionally, broader health and lifestyle trends could weigh on wine demand going forward.
The company’s debt-to-equity ratio sits at 1.67x, higher than Brown-Forman’s 0.68x but lower than Diageo’s 2.1x. While leverage can enhance returns, it also increases vulnerability during economic downturns or periods of weaker cash flow.
Recent Strategic Moves Have Improved Its Outlook
The company has executed major strategic moves, shedding lower-margin wine brands and doubling down on high-growth, premium segments. Beer now represents more than half of sales, and their spirits lineup has been strengthened through targeted acquisitions that align with consumer shifts toward premium offerings.
Constellation Brands' recent divestitures — including the sale of SVEDKA vodka in January 2025 and the transfer of several mainstream wine brands such as Woodbridge and Meiomi in June 2025 — represent a strategic shift toward a higher-end, higher-margin portfolio.
By focusing on premium products, the company improves profitability, strengthens brand positioning, and reduces operational complexity. The transactions generate immediate cash proceeds, support debt reduction, and enhance free cash flow, enabling more disciplined capital allocation.
Take Your Time Entering
The bullish fundamentals are present, but the technicals point toward continued near-term pressure.
One thing I have learned investing in stocks is that you can have a divergence between fundamental valuation and technical sentiment. Right now, STZ has broken support around $200 per share, and volume is still higher on down moves and lighter on up moves. This indicates that all the sellers may not have exited yet, but that stronger hands are accumulating.
In cases like this, I like to take smaller initial positions and average my way into the stock. I don't use this technique for fast-growing momentum stocks, only for companies I intend to hold long term and compound over time. The stock may go down further in the near term, but I would accumulate shares as long as the bullish fundamentals continue.
Bottom Line
If you’re a long-term investor looking for rising cash flow, appreciation, and a business that allocates capital like an owner, Constellation Brands is worth serious consideration instead of bonds.
