Altria Group (MO), which makes leading cigarette brands such as Marlboro, currently has a dividend yield of 8.6% and has increased its dividend 54 times in the last 50 years. This is a particularly good opportunity to invest in Altria, and for this reason, it is a no for me. I believe shareholders will be rewarded with rising dividends for many years to come. Indeed, Altira has increased its dividend by more than 20% over the past two years, qualifying itself as “the dividend king.”
The stock currently has a market capitalization of $69 billion, and Altria is one of the largest tobacco companies in the United States and the second-largest in Europe.
Altria’s core business is smoke-free products, including cigarettes, cigars, smokeless tobacco, and other smoke-free products, which account for about 88% of the company’s sales in 2019. Despite changing consumer trends, Altria has taken steps in recent years to diversify its product portfolio. Traditional smoky products continue to pose a risk to shareholders due to the continued decline in smoking rates but still account for a large proportion of sales, according to the annual report.
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Altria has invested in its own tobacco-free products such as e-cigarettes and smokeless tobacco brands Skoal and Copenhagen. In addition, it has diversified by owning Ste. Michelle, marijuana producers, and a 10% stake in Anheuser-Busch InBev (BUD). These investments should pave the way for the long-term and future growth of the company.
In the meantime, its legacy brands continue to generate high profitability and growth. Altria’s revenue rose 15% to $5 billion in the first quarter, driven by strong sales of tobacco products, e-cigarettes, and smokeless tobacco.
Altria Group Stock (MO) EPS & Valuation
Altria’s adjusted EPS rose 18% to $18 in the latest quarter from $12.5 billion in the first quarter of last year. Consumers are piling more and more tobacco products, e-cigarettes, and smokeless tobacco into their pantries.
While many companies are struggling to survive the coronavirus crisis, Altria has a strong balance sheet and sufficient liquidity. MO recently drew $3 billion from its revolving credit facility and suspended its share buyback. The goal is to keep a targeted dividend payout ratio of 80% EPS.
As a result, Altria stock appears undervalued, and my estimate of the fair value of $11 is well below the market’s current price-earnings ratio of 8.9. It has a dividend policy that calls for an annual dividend of 2.5 cents per share on adjusted annual EPS. Its shares are currently trading at a price-to-earnings ratio of between 8 and 9 based on the Company’s adjusted EPS estimates for the next three years.
An expanding valuation could boost annual returns by about 4.3% over the next five years. In addition, I expect Altria to achieve adjusted EPS growth of approximately 2.5% per annum, comprising an annual dividend of 2 cents per share on adjusted annual EPS. This would deliver an expected total return of 3.7% per year, making Altira the top dividend earner.
Why Altria Group Stock (MO) is A BUY
I think Altria Group Stock (MO) is one of the best companies to buy right now and should be recession-proof. Yes, there is a business risk due to tobacco, but Altria has diversified and continues to find other business opportunities. Some might have an issue with “vice investing” but historically vices do well in down economic times. More importantly, if you are value and dividend investor, Altria stock is “The Dividend King.”
Ruchi has an Accounting and Graduate Degree in Business from the International School and Business and Media. She is exceptionally skilled in financial databases like Bloomberg, ThomsonOne,Datastream, CapitalIQ, and Factiva. Her focus at AlphaBetaStock.com is research breaking stocks and investment stories.
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