Diageo opts to return £600m to investors

Diageo intends to cap its dividend payouts from next year, opting instead to hand back cash to investors via share buy-backs.

Diageo intends to cap its dividend payouts from next year, opting instead to hand back cash to investors via share buy-backs.

The spirits giant will return half the proceeds - £600m - from selling its stake in General Mills by June 2005 by acquiring its shares in the market. The other half will be used to pay down debt.

Cazenove, Diageo's house broker, now expects the group to buy back £750m shares this year, up from £600m.

Diageo said it would cap its dividend increases to 5 per cent, down from about 8 per cent, until its dividend cover - the number of times dividend payment can be made from profits - reached two times.

It spelt out its policy shift in a trading update, which disappointed analysts by merely reiterating last month's slightly downbeat message that tough European markets and a weak dollar were holding back growth of its stable of brands. Its shares slipped 8p to 730p.