The Dividend Kings are the best-of-the-best in dividend longevity. These are stocks with 50 or more consecutive years of dividend increases, asserts growth and income expert Ben Reynolds, editor of Sure Dividend.
The Dividend Kings list is a great place to find dividend stock ideas. However, not all the stocks in the Dividend Kings list make a great investment at any given time.
The 5 stocks featured in this report are our top-ranked Dividend Kings today, based on expected annual returns through 2025. Stocks are ranked in order of lowest to highest expected annual returns. Total returns include a combination of future earnings-per-share growth, dividends, and any changes in the P/E multiple.
Read Part 1 — Lowe’s Companies here
Part 2 — National Fuel Gas here
Part 3 — Farmers & Merchants Bancorp
Altria Group (MO) — the second highest ranked stock in our countdown — was founded by Philip Morris in 1847. Today, it is a consumer staples giant.
Altria sells the Marlboro cigarette brand in the U.S. and a number of other non-smokeable brands, including Skoal, Copenhagen, and the Ste. Michelle brand of wine. Altria also has a 10% ownership stake in global beer giant Anheuser Busch InBev (BUD).
On July 28th, Altria reported financial results for the 2020 second quarter. Revenue of $5.06 billion fell 2.5% year-over-year. Smokeable product volume declined 8.7% year-over-year, a full percentage point better than expectations.
Smokeless product volume dropped 1%, far better than the 2.7% drop that was anticipated. Adjusted earnings-per-share came to $1.09, up 1% year-over-year. Altria also announced a 2.4% dividend increase.
The company has taken precautions to shore up its financial positions, including drawing $3 billion on its revolving credit facility, suspended its share repurchases, and it withdrew its full-year guidance due to coronavirus uncertainty.
That said, the company maintained its target dividend payout ratio of 80%, in terms of adjusted EPS. If the first quarter is any indication, Altria may get through the coronavirus relatively well.
The long-term future is cloudy for cigarette manufacturers such as Altria, which is why the company has invested heavily in adjacent categories to fuel its future growth.
The company purchased a 55% equity stake in Canadian marijuana producer Cronos Group (CRON), invested nearly $13 billion for a 35% equity stake in e-vapor manufacturer Juul Labs, and recently acquired an 80% ownership stake in Switzerland-based Burger Söhne Group, for its on! oral nicotine pouch brand. These investments could provide Altria much-needed growth as the cigarette market steadily declines.
In the meantime, Altria has a very high dividend yield of nearly 8%. The payout appears secure, as Altria generates huge cash flow, even during recessions. The company has increased its dividend for 51 consecutive years. Altria ranks very highly in terms of safety because the company has tremendous competitive advantages.
It operates in a highly regulated industry, which virtually eliminates the threat of new competition in the tobacco industry. Altria enjoys strong brands across its product portfolio, including the No. 1 cigarette brand.
As a result, it has pricing power and brand loyalty. In addition, tobacco companies enjoy low manufacturing and distribution costs, thanks to economies of scale.
Based on expected EPS of $4.27 for 2020, Altria stock trades for a P/E ratio of 10.3, below our fair value estimate of 11.
We also expect Altria to grow adjusted EPS by approximately 3.2% per year over the next five years. In addition to the 7.9% dividend yield as well as a small positive boost from an expanding P/E multiple, total returns are expected at 12.4% per year over the next five years.
