Buying FTSE 100 dividend stocks can be a great way of earning a second income over time. In the best cases, the cash keeps coming in whether the stock market goes up or down. 

One in my portfolio at the moment is Diageo (LSE:DGE). But as the dividend yield gets close to 5%, should I start to worry about my investment or put my foot down and buy more?

Dividends

Over the last 12 months, Diageo has returned 77.69p per share in dividends. That means someone needs 15,466 shares to earn £12,000 a year, or £1,000 a month. 

At today’s prices, that would cost around £255,00. I’m nowhere near that level at the moment, but it is something I can work towards.

And, I think right now looks like a good time to make a move. A falling share price means the dividend yield is now approaching 5% for the first time in a very long time. 

There’s a risk a cut might be imminent with the new CEO looking to turn things around. But there are also some important reasons to be positive about the stock going forward. 

Smart money

One investor who isn’t selling is Nick Train, who runs the Finsbury Growth & Income Trust. Diageo is a big part of this portfolio and it looks set to stay that way.

In a recent presentation, Train stated that the new Diageo CEO thinks there are long-term growth opportunities for the FTSE 100 firm. And this is built on two main premises.

The first is that the spirits industry is set to win market share, even as consumer preferences change. In the US, Gen Z are the first generation to consume spirits more than beer.

The second is Diageo’s unique strengths in terms of its brand portfolio and its distribution. And that’s what investors looking for long-term dividend income need to focus on.

The big question

Diageo is clearly facing a challenging environment at the moment. But at least some of this is the result of short-term factors to do with inflation and weak consumer spending.

The big question for investors is how much (if any) of it represents a permanent change. For example, are consumers shifting towards drinking less, or just towards spirits?

The risk of consumption falling overall seems to be a very real one. But the new CEO clearly thinks there’s an opportunity and it’s worth noting he didn’t have to take the job. 

Sir Dave Lewis has a strong reputation from his work at Tesco. And to some extent, he’s putting that on the line by taking over at Diageo at a time when the firm is facing real challenges.

Hold?

Nick Train seems to be unwilling to give up on Diageo shares. But at the same time, the Finsbury Growth & Income Trust doesn’t exactly seem to be doubling down on the stock.

At the high level, the new CEO’s plan to focus on winning market share from other categories should be a familiar one. It’s what the firm was trying to do under Debra Crew.

The more the stock falls, though, the more attractive the equation becomes for investors. And that’s why I’m starting to think about adding to my stake again.