One FTSE 100 dividend stock I'd buy with Diageo plc

Senior directors at FTSE 100 companies don't often make serious share purchases with their own cash.

So it was interesting to see the chairman of drinks giant Diageo (LSE: DGE), Javier Ferrán, buying £1.6m worth of the group's shares earlier this month. To put this in context, his annual fee as chairman is £600,000. So this share purchase was equivalent to 2.7 times his salary.

I was also interested to note that the company requires its chief executive, Ivan Menezes, to hold shares equivalent to five times his annual salary. But as of 13 July, Mr Menezes has gone way beyond this. His last-reported shareholding was 1,696% of his salary, or around £24m.

I think it's probably fair to say that his interests are quite well aligned with those of his shareholders. I'm also comfortable that Mr Ferrán will be motivated to increase the value of his shareholding. So does that mean that Diageo's current price tag of £25.75 per share represents good value?

The group's shares currently trade on a forecast P/E of 22 and offer a yield of about 2.5%. That doesn't sound cheap, but this is a high quality, defensive business. Diageo has a five-year average operating margin of 29% and very strong free cash flow.

Investing at current levels might not be a profitable short-term trade. But I suspect that if you chose to buy these shares today and put them away for 10 years, you'd be pleased with the end result.

An overlooked star buy?

You are probably already familiar with Diageo and many of its products. But unless you're in the construction business, you're unlikely to have much experience of my next stock.

Dublin-based CRH (LSE: CRH) has a market cap of £22bn and is one of the world's largest building materials companies. The firm's main focus is on so-called heavyside materials, such as cement, aggregates and concrete.

CRH shares rose by about 3% this morning after the company said that its sales rose by 2% to EUR13bn during the first half of the year. This lifted earnings before interest, tax, depreciation and amortisation (EBITDA) by 5% to EUR1.175bn.

The group also revealed two changes to its portfolio of businesses. I believe these highlight management's active approach to creating value for shareholders.

In the US, CRH will sell its Americas Distribution business for about EUR2.2bn in cash. Management says that while this business is performing well, there's no longer a clear route for growth or market leadership.

At the same time, the company will spend EUR0.6bn on acquiring German company Fels. This lime and aggregate business has nine production locations in Germany, plus one in each of Russia and the Czech Republic. Fels is said to be a market leader in these locations, and also has more than 1bn tonnes of high-quality limestone reserves.

Like Diageo, CRH stock isn't obviously cheap. The shares currently trade on about 16 times 2017 forecast earnings, falling to about 14 times forecast earnings for 2018. The dividend yield of 2.5% isn't outstanding either. And profit could be vulnerable to a major recession in North American or Europe.

But despite all of these risks, I believe this is a quality business that's likely to deliver attractive returns for shareholders.

Our analysts rate this stock a buy

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Roland Head has no positions in any company mentioned. The Motley Fool UK has recommended Diageo. 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

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