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High Dividend 50: Altria Group


Updated on May 31st, 2024 by Bob Ciura

High-yield stocks pay out dividends that are significantly more than market average dividends. For example, the S&P 500’s current yield is only ~1.4%.

High-yield stocks can be very helpful to shore up income after retirement. A $120,000 investment in stocks with an average dividend yield of 5% creates an average of $500 a month in dividends.

Altria is part of our ‘High Dividend 50’ series, where we cover the 50 highest yielding stocks in the Sure Analysis Research Database.

We have created a spreadsheet of stocks (and closely related REITs and MLPs, etc.) with dividend yields of 5% or more…

You can download your free full list of all securities with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:

 

Click here to instantly download your free high dividend stocks spreadsheet now, along with important investing metrics.

Next on our list of high dividend stocks to review is Altria Group (MO).

Altria has a 54-year dividend increase streak, which qualifies it as a Dividend King. A large part of why Altria has been able to raise the dividend for so long is because of its multiple competitive advantages.

Business Overview

Altria is a tobacco stock that sells cigarettes, chewing tobacco, cigars, e-cigarettes, and more under a variety of brands, including Marlboro, Skoal, and Copenhagen, among others.

The company also has a 35% investment stake in e-cigarette maker JUUL, and a 45% stake in the cannabis company Cronos Group (CRON).

The majority of Altria’s revenue and profit is still made up of smokeable tobacco products. The Marlboro brand still enjoys the leading market share in the U.S. market.

Source: Investor Presentation

Over many decades, this has served the company (and its shareholders) very well. While high dividend yields are common with tobacco stocks, no other company in the industry has a dividend increase streak as long as Altria’s.

In the 2024 first quarter, Altria’s net revenue of $5.576 billion declined 2.5% from the first quarter of 2023, with revenue net of excise taxes at $4.717 billion, down 1.0%.

Adjusted diluted EPS stood at $1.15, a decrease of 2.5% compared to the same period last year.

Growth Prospects

Altria’s future growth faces an uncertain future due to changing consumer habits.

As a major tobacco company, Altria has to face the reality of declining smoking rates in the United States. Each year, there are fewer cigarette smokers in the U.S. As a result, there are fewer customers for tobacco companies like Altria.

The total industry decline was estimated at 8% in 2023. Altria’s declines reflect the industry-wide challenges.

Traditionally, tobacco manufacturers have compensated for falling smoking volumes with price increases. So far, this has worked to offset lost revenue. Altria will continue to raise prices in the years to come.

But still, tobacco companies must adapt to the new environment, and Altria is preparing for a post-cigarette world by investing in the development of smoke-free products.

Source: Investor Presentation

Altria has invested heavily in non-combustible products, such as its $13 billion investment in e-cigarette leader JUUL and its $1.8 billion investment in Cronos. E-vapor and cannabis could be two major long-term growth catalysts going forward.

Altria has also acquired Swiss company Burger Söhne Group, to commercialize it’s on! oral nicotine pouches. Oral tobacco is a growth area for Altria, as consumers who have quit smoking increasingly shift to oral tobacco products.

The company will also be able to generate earnings-per-share growth through cost reductions and share repurchases. Altria utilized $1 billion for share repurchases in 2023, and $1.8 billion in 2022.

In all, we expect ~2.4% compound annual growth for Altria’s earnings-per-share over the next five years.

Competitive Advantages & Recession Performance

Altria benefits from a multitude of competitive advantages, which have allowed the company to generate steady growth over decades. First off, Altria has tremendous brand loyalty.

Retail market share for the flagship Marlboro cigarette brand has remained at over 40% for many years. This allows the company to raise prices every year and still keep its customer base intact.

Also, tobacco manufacturers operate an advantageous business model which does not require intensive capital expenditures. Tobacco is not a capital-intensive business, thanks to economies of scale in production and distribution. This is why Altria generates strong free cash flow each year, even as revenue has stagnated from falling smoking rates.

Such strong free cash flow leaves a great deal of cash available for shareholder returns, debt repayment, and investment in future growth initiatives.

Another benefit of Altria’s business model is that it is highly resistant to recessions. Cigarettes and alcohol sales hold up very well during recessions, which keeps Altria’s profitability and dividend growth intact.

The company performed strongly during the previous major economic downturn, the Great Recession of 2008-2009:

Altria grew its adjusted earnings-per-share in each year of the Great Recession. This demonstrates the company’s ability to produce steady earnings growth, even when the broader economic environment becomes more challenging.

Earnings-per-share also grew during the pandemic, which is just another example showcasing the resilience of Altria’s business under various tough economic environments and uncertain trading conditions.

Given Altria’s exposure to recession-resistant products, it should hold up very well during the next downturn.

Dividend Analysis

Altria’s current annual dividend is $3.92 per share. With the company shares currently priced at $46, Altria has a high yield of 8.5%.

Given Altria’s outlook for 2024, diluted EPS is expected to be $5.06. As a result, the company is expected to pay out roughly 78% of its EPS to shareholders in the form of dividends.

Since the company has strong adjusted operating companies income (OCI) margins, low CAPEX, little competition, and a very wide moat, it can afford to pay out a large portion of earnings safely. For its part, Altria has a target payout ratio of about 80%.

Altria is a Dividend King, which is an elite group of stocks that have each raised their dividend for 50 consecutive years or more. This shows Altria’s dependability as a dividend growth stock.

The dividend appears to be sustainable, and we estimate the company will continue to grow the dividend at an annual growth rate of about 2% over the medium term.

The 8.5% dividend yield is very attractive for investors who focus primarily on income.

Final Thoughts

Altria has increased its dividend each year for over five decades, a highly impressive track record. It now faces uncertainty due to the continued decline in smoking rates, but it has made investments to deal with the changing consumer landscape by expanding into new products such as heated tobacco, e-vapor, and cannabis.

The company will be relying on these segments to fuel continued growth in the years to come. Therefore, the stock seems very attractive for income investors.

If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:

High-Yield Individual Security Research

Other Sure Dividend Resources

Thanks for reading this article. Please send any feedback, corrections, or questions to support@suredividend.com.



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